Jul 122015
 
 July 12, 2015  Posted by at 2:32 pm Finance Tagged with: , , , ,  14 Responses »


DPC On the beach, Coney Island 1907

Too many voices the past few days are all pointing the same way, and I’ve always thought that is never good. A guessing-based consensus, jumping to conclusions and all that. Look, it’s fine if you don’t have all the answers, no matter how nervous it makes you.

What I’m referring to in this instance is the overwhelming conviction that Greece and Tsipras have conceded, given in to the Troika, flown a white flag, you get the drift. But guys, the battle ain’t over yet.

So here’s an alternative scenario, purely hypothetically (but so in essence is the white flag idea, always got to wait for the fat lady), and for entertainment purposes only. Let ‘er rip:

Tsipras, first through holding a referendum, and then through delivering a proposal that at first sight looked worse than what the Troika provided before the referendum, has managed a number of things.

First, his domestic support base has solidified. That’s what the referendum confirmed once more. Second, he’s given the Troika members, plus the various nations that think they represent them, something that was sure from the moment he sent it to them: a way to divide and rule and conquer the lot.

Tsipras has set the IMF versus the EU versus the ECB. Schäuble snapped at Draghi last night: ”Do you hold me for a fool?” Germany itself is split too, Merkel and Schäuble are at odds. Germany and France don’t see eye to eye anymore. The US doesn’t see eye to eye with any party involved.

Italy is about to tell Germany to stop its shenanigans and get a deal done. The True Finns may get to decide the entire shebang, with less than 1 million rabid voters calling the shots for 320 million eurozone inhabitants.

From that point of view, Tsipras has done a great job at playing the other side of the table off against each other. So much so, it doesn’t even have to have been intentional, and it still works out great. He’s exposed the entire EU structure as a bag of bones, let alone a naked emperor.

Moreover, imagine this also purely hypothetical and for entertainment purposes only notion: maybe Tsipras has known forever that for Greece to stay inside the eurozone was a losing proposition. But he never had the mandate. Well, after Schäuble’s antics last night, that mandate has come a lot closer. And it’s not even just in Greece either.

And he may not even need such a mandate: Schäuble may do the job for him. If Tsipras pokes him just a little more, he’ll throw such a hissyfit that Alexis will be able to get Greece out of the euro without carrying the blame himself. And get money for the effort. Lots of money.

And that’s not all: he’ll sow division in the ranks to such an extent that the whole EU won’t survive. How can Schäuble stay in his post after this? How can Draghi? He’s shown them all, for the whole world to see, to be nothing but hot air bags of bones. Their entire credibility is shot to bits.

What’s coming out now in the western press are little factoids like Draghi was vice chairman and managing director of Goldman Sachs International when those infamous swaps were arranged through the bank, that allowed Greece to hide its debt and be eligible for euro membership, and that have already cost the country $5 billion down the road so far.

And that Schäuble accepted 100,000 marks from Canadian/German arms lobbyist Karlheinz Schreiber in 1999, a move that brought down both Helmut Kohl and Schäuble himself, clearing the way for…drumroll… Angela Merkel. Case has never been entirely solved, no charges were laid against Kohl or Schäuble.

If that’s what Tsipras was aiming for, great. But even if he wasn’t, consciously, still great. The Troika is finished and will never be the same. Nor will the EU. Sometimes all you have to do is make someone so mad they’ll blow up, just find the right trigger point.

And it’s not as if I didn’t warn about this. On the eve of the referendum, I said:

With Yanis Gone, Now Troika Heads Must Roll

It’s time for the Troika to seek out some real men too. It cannot be that the winner leaves and all the losers get to stay. The attempts to suppress the IMF debt sustainability analysis were a shameful attempt to mislead the people of Greece, and of Europe as a whole. And don’t forget the US: Lagarde operates out of Washington. It cannot be that after this mockery of democracy, these same people can just remain where they are.

It’s time for Europe to show the same democratic heart that Varoufakis has shown this morning. And if that doesn’t happen, all Europeans should make sure to leave the European Union as quickly as they can. Because that would prove once and for all that the EU is no more than a cheap facade, a thin veil behind which something pretty awful tries to hide its ugly face.

But you know, these people think they’re untouchable. They’re not, and Tsipras has exposed that. Not bad for a weekend’s work.

I hear a lot of talk about regime change, and all the Greek opposition leaders being invited to Brussels. But a party that has a solid and rising approval rating and support base is not easy to topple. I think the regime change will have to take place on the other side of the negotiating table (Tsipras will shuffle some seats, but that’s all he needs to do).

From my purely hypothetical and for entertainment purposes only scenario, Tsipras has set the perfect trap for the other side of the table. He’s driving them apart, setting them off against each other, putting them into incompatible positions, and making the positions of quite a few of them untenable.

This is no longer about saving Greece, it’s about saving the entire European edifice. And that is a losing battle, certainly as long as the assclowns are involved that have run the show up to now.

As hypothetical as this all may be, I think perhaps it’s a good idea to give Alexis Tsipras a bit more of the benefit of the doubt.

Jul 122015
 


DPC Up Sutter Street from Grant Avenue, San Francisco 1906

China’s Real Problem Isn’t Stocks – It’s Real Estate! (Harry Dent)
Greece Crisis: Europe Turns The Screw (Paul Mason)
EU Leaders’ Greece Summit Cancelled As Eurozone Talks Grind On (Guardian)
Greek Bailout Deal Remains Elusive (WSJ)
Germany Prepares ‘Temporary’ Grexit, Euro Project On Brink Of Collapse (Khan)
Germany Trying To Humiliate Greece, Says MEP Papadimoulis (Reuters)
Finland’s Parliament In Favour Of Forcing Greece Out Of The Euro (AFP)
The Problem With a Euro Fix: What’s in It for the Dutch? (NY Times)
Would Grexit Be A Disaster? Probably Not, Says History (Arends)
Angela Merkel’s Legacy At Stake As She Chooses Between Two Disasters (Guardian)
The Eurogroup Gets Mythological on Greece (Lucey)
A Union of Deflation and Unemployment (Andricopoulos)
The Great Recession and the Eurozone crisis (Wren-Lewis)
Greece Prepares Itself To Face Another Year Of Political Turmoil (Observer)
Greeks Resigned To A Hard, Bitter Future Whatever Deal Is Reached (Observer)
A Coming Era Of Civil Disobedience? (Buchanan)

China private debt is staggering.

China’s Real Problem Isn’t Stocks – It’s Real Estate! (Harry Dent)

I always say bubbles burst much faster than they grow. And after exploding up 159% in one year, Chinese stocks crashed 35% in three weeks. This all happened while the Chinese economy and exports continued to fall. And two thirds of these new trading accounts belong to investors who don’t have so much as a high school degree. How crazy is that? As Rodney wrote earlier this week, the Chinese government is taking every desperate measure to stop the slide: Artificial buying to prop up the market… Banning pension funds from selling stocks… Threatening to jail investors for shorting stocks… Allowing 1350 out of 2900 major firms to halt trading in their stocks indefinitely, and stopping trades on another 750 that fell 10% or more… It’s madness!

This second and FINAL bubble in Chinese stocks occurred precisely because real estate stopped going up. Over the last year it actually declined. So after decades of speculation, the gains stopped coming in, and rich and poor investors alike switched to stocks. But the funny thing about the Chinese is – they don’t put most of their money in stocks. Only about 7% of urban investors own stocks and half of those accounts are under $15,000. In fact, it’s estimated that the Chinese only put 15% of their assets there, and that may be on the high side. What is so unusual about the Chinese is that they save just over half their income! And the top 10% save over two-thirds! And where do those savings go? Mostly into real estate! China’s home ownership rate is 90%. It’s just 64% in the U.S. even though we’re much wealthier and credit-worthy.

That’s because home ownership is a staple of their culture. A Chinese man has no chance of getting a date or getting laid unless he owns a home – no matter how small. Just look at this simple chart:

Chinese households have 74.7% of their assets in real estate vs. 27.9% in the U.S. – which helps explain why theirs is one of the greatest real estate bubbles in modern history! But the key here is – when that bubble bursts, it will cause an unimaginable implosion of Chinese wealth. In one fell swoop, three-quarters of their assets will get crushed! And just how big of a bubble is it? In Shanghai, real estate is up 6.6 times since 2000. That’s 560%. I’ve been going on and on about the massive overbuilding of basically everything in China for years now. I’ve never once flinched from my prediction that this enormous bubble will burst. And I’ve kept saying there will be a very hard landing no matter how much the government tries to fight it.

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So there! “.. the Greeks last night revealed the true dysfunctionality of the system they are trying to stay inside.”

Greece Crisis: Europe Turns The Screw (Paul Mason)

The Greeks arrived with a set of proposals widely scorned as “more austere than the ones they rejected”. The internet burst forth with catcalls – “they’ve caved in”. By doing so, however, the Greeks last night revealed the true dysfunctionality of the system they are trying to stay inside. First, Germany put forward a proposal one could best describe as “back of envelope” for Greece to leave the Eurozone for five years. There is logic to it – because Germany was signalling that only outside the Eurozone could Greece’s debts be written off. But for the most powerful Eurozone nation to arrive with an unspecified, two-paragraph “suggestion” at this stage explains why the Italians, according to the Guardian, are about to blast them with both barrels for lack of leadership.

Then came the Finns. Their government is a coalition of centre right parties and the right-wing populist Finns Party. The latter threatened to collapse the new governing coalition if the Finns take part in a new bailout for Greece. The demand is now that the Greeks pass all the laws they signed up to in advance of any new bailout deal. This is backed up by a threat to keep the Greek banks starved of liquidity from the ECB for another week. In Greece large numbers of people – on all sides of politics – believe the Europeans are trying to force the elected government to resign before a deal is concluded. If so there will be political chaos. Syriza’s poll rating is currently 38% and rising. Without a “moderate” split from Syriza the centrist parties have no chance of forming a new government, and without Tsipras’ tacit consent there can be no interim government of unelected technocrats.

On Friday I reported, on the basis of intelligence being supplied to large corporations, that the key supply concerns are gas – because of the need for forward contracts – disposables in the healthcare system, and meat imports. The screw Europe is turning on its own supposed member state now begins to resemble a sanctions regime. Without more liquidity the banks will run out of money some time this week. To be clear, it is Europe that is in charge of the Greek banking system, not Greece. Yet after last night what many in Greece and elsewhere see is that Europe has no single understanding of what it’s trying to achieve through this enforced destruction of a modern economy.

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Got to stretch it out for dramatic effect.

EU Leaders’ Greece Summit Cancelled As Eurozone Talks Grind On (Guardian)

A meeting of all EU leaders to decide Greece’s fate has been cancelled, as ministers from the narrower eurozone group struggle to agree on a way forward to resolve the intractable debt crisis. Donald Tusk, the European council president, announced that the session of the 28 EU heads of government scheduled for Sunday had been postponed. Instead, eurozone finance ministers are meeting on Sunday morning, and a summit of eurozone heads of government will take place in the afternoon. “I have cancelled #EUCO today. #EuroSummit to start at 16h and last until we conclude talks on #Greece,” Tusk tweeted. Last-chance talks between the 19 eurozone finance ministers in Brussels ended at midnight, with deep divisions persisting over whether to extend another bailout of up to €80bn to Greece in return for fiscal reforms.

Finland rejected any more funding for the country and Germany called for Greece to be turfed out of the currency bloc for at least five years. Experts from the group of creditors known as the troika said fiscal rigour proposals from Athens were good enough to form “the basis for negotiations”. But the German finance minister, Wolfgang Schäuble, dismissed that view, supported by a number of northern and eastern European states. “These proposals cannot build the basis for a completely new, three-year [bailout] programme, as requested by Greece,” said a German finance ministry paper. It called for Greece to be expelled from the eurozone for a minimum of five years and demanded that the Greek government transfer €50bn of state assets to an outside agency for sell-off.

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Only some of the parties seem to want one.

Greek Bailout Deal Remains Elusive (WSJ)

Greek crisis talks between eurozone finance ministers on a new €74 billion loan came to an inconclusive end this morning in a sign that a deal which would secure much-needed financing for Athens and prevent a possible exit from the currency area is still far from certain. The ministers will reconvene at around 11am local time in an effort to reach consensus on whether economic overhauls and budget cuts proposed by Greece are sufficiently far-reaching to form a basis for negotiations on fresh loans to Athens. Then the baton will be handed over to European leaders, who will gather for an emergency summit. The heads of state and government will then have to determine how much money, and political goodwill, they are prepared to spend on keeping Greece in their currency union.

“It is still very difficult, but work is still in progress” said Dutch Finance Minister Jeroen Dijsselbloem, who presides over the meetings with his counterparts. “There’s always hope,” said Pierre Moscovici, the European Union’s economics commissioner, adding that he hoped for more progress. Only unanimous agreement on the amount of new rescue loans and debt relief to grant Athens will allow the country to avoid full-on bankruptcy and Greek banks to reopen on Monday with euros in their tills. The talks came after an assessment by the Troika estimated that a new bailout for Greece would cost €74 billion. In a letter requesting the loan earlier this week, Greece has estimated its financing needs at €53.5 billion.

Two weeks of capital controls have inflicted such damage on Greece’s banks that it will cost €25 billion to prop them up again, European officials said. Such costs would add to Greece’s already high debt load, creating more pressure for controversial action to be taken to make it more manageable. Over the past five months, Athens has exhausted the patience of most of its counterparts — particularly after Prime Minister Alexis Tsipras unexpectedly called for a referendum on creditors’ demands, asking voters to reject them. While Mr. Tsipras has since largely backed down on most of the overhauls and budget cuts creditors asked for, there are doubts across European capitals over whether his government can implement any deal it signs.

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If you ask me, tempexit is the craziest notion so far.

Germany Prepares ‘Temporary’ Grexit, Euro Project On Brink Of Collapse (Khan)

The German government has begun preparations for Greece to be ejected from the eurozone, as the European Union faces 24 hours to rescue the single currency project from the brink of collapse. Finance ministers failed to break the deadlock with Greece over a new bail-out package, after nine hours of acrimonious talks as creditors accused Athens of destroying their trust. It leaves the future of the eurozone in tatters only 15 years after its inception. In a weekend billed as Europe’s last chance to save the monetary union, ministers will now reconvene on Sunday morning ahead of an EU leaders’ summit later in the evening, to thrash out an agreement or decide to eject Greece from the eurozone.

Should no deal be forthcoming, the German government has made preparations to negotiate a temporary five-year euro exit, providing Greece with humanitarian aid while it makes the transition. An incendiary plan drafted by Berlin’s finance ministry, with the backing of Angela Merkel, laid out two stark options for Greece: either the government submits to drastic measures such as placing €50bn of its assets in a trust fund to pay off its debts, and have Brussels take over its public administration, or agree to a “time-out” solution where it would be expelled from the eurozone. German vice-chancellor Sigmar Gabriel said they were Greece’s only viable options, unless Athens could come up with better alternatives. “Every possible proposal needs to be examined impartially” said Mr Gabriel, who is also Germany’s socialist party leader.

Creditors voiced grave mistrust with Athens, a week after the Leftist government held a referendum in which it urged the Greek people to reject the bail-out conditions it has now signed up to. A desperate Alexis Tsipras managed to secure parliamentary backing for a raft of spending cuts and tax rises to secure a new three-year rescue programme worth around €75bn-€100bn. But finance ministers rounded on Mr Tsipras for offering to implement measures that he had previously dubbed “humiliating” and “blackmail” only seven days ago. “We will certainly not be able to rely on promises,” said Germany’s hard-line finance minister, Wolfgang Schäuble. “In recent months, during the last few hours, the trust has been destroyed in incomprehensible ways,” he said. “We are determined to not make calculations that everyone knows can’t be trusted. We will have exceptionally difficult negotiations. I don’t think we will reach an easy decision.”

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No kidding.

Germany Trying To Humiliate Greece, Says MEP Papadimoulis (Reuters)

Germany is trying to humiliate Greece by bringing new demands for a bailout deal, Dimitrios Papadimoulis, Vice-President of the European Parliament and member of Greece’s ruling SYRIZA party, said on Sunday. Highlighting the depth of reluctance to grant another rescue to Greece, Germany’s finance ministry put forward a paper on Saturday demanding stronger Greek measures or a five-year “time-out” from the euro zone that looked like a disguised expulsion. “What is at play here is an attempt to humiliate Greece and Greeks, or to overthrow the (Prime Minister Alexis) Tsipras government,” Papadimoulis told Mega TV.

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A country with a population half the size of Greece will decide?

Finland’s Parliament In Favour Of Forcing Greece Out Of The Euro (AFP)

Finland’s parliament has decided it will not accept any new bailout deal for Greece, media reports said Saturday, piling on pressure as eurozone finance ministers tried to find a way out of the impasse. The decision to push for a so-called “Grexit” came after the eurosceptic Finns party, the second-largest in parliament, threatened to bring down the government if it backed another rescue deal for Greece, according to public broadcaster Yle. Under Finland’s parliamentary system, the country’s “grand committee” – made up of 25 of 200 MPs – gives the government a mandate to negotiate on an aid agreement for Greece. Members of the committee met for talks in Helsinki on Saturday afternoon to decide their position, YLE reported.

The finance minister, Alexander Stubb, was at the crunch eurozone talks in Brussels and tweeted that he could not reveal the mandate given to him by the grand committee so long as the negotiations were still ongoing. “The mandate is not public and the Finnish delegation will not discuss it publicly,” Kaisa Amaral, a Finnish spokesman, told AFP. The Brussels talks were set to resume on Sunday after failing to reach an agreement on Saturday but opinion among northern and eastern European countries appeared to be hardening against accepting the reform’s Greece has offered in exchange for another bailout. Finns party leader Timo Soini, who is also the country’s foreign minister, has repeatedly argued in favour a “Grexit”, saying it would be better for Greece to leave the euro.

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Holland in the role of Connecticut.

The Problem With a Euro Fix: What’s in It for the Dutch? (NY Times)

Economists agree: If the eurozone does not break up, it will have to move closer together. They’re right. But it’s easy to understand why Europeans are not eager to heed their advice. Basically, the proposition of European integration is that the Netherlands should end up like Connecticut. And even though Connecticut is a lovely place, the Dutch have good reason to be wary of that. It’s expensive to be Connecticut, because Connecticut has to pay for Mississippi and Alabama. Large, economically diverse areas can successfully share a single currency if they have deep economic links that make it possible for troubled regions to ride out crises. That means shared bank regulation and deposit insurance, so banks don’t face regional panics; a labor market that lets people move from places without jobs to places with them; and a fiscal union, which allows the government to collect taxes wherever there is money and spend it wherever there are needs.

The United States shows that this approach can work: America’s 50 economically diverse states share a currency quite comfortably, in part because of our banking union (Washington State did not have to bail out Washington Mutual on its own when it failed), our fluid labor market (as oil prices rise and fall, workers move in and out of North Dakota) and our fiscal union (states in economic pain benefit from government programs financed by all states). Nevada does not need to devalue its currency to restore its competitiveness relative to California in a severe recession; instead, Nevadans can collect federally funded unemployment insurance and, if necessary, move to California. If the Greeks had similar options available in 2008, they would be much better off today.

But the EU’s centralized budget equals only about 1% of Europe’s GDP, compared with more than 20% for the American federal government. A much more centralized E.U. budget, with much more money flowing through Brussels the way it flows through Washington, could provide similar macroeconomic stability to Europe by creating a fiscal union. But the American fiscal union is very expensive for rich states. According to calculations by The Economist, Connecticut paid out 5% of its gross domestic product in net fiscal transfers to other states between 1990 and 2009; that is, its tax payments exceeded its receipt of government services by that amount. This is typical for rich states: They pay a disproportionate share of income and payroll taxes, while government services are disproportionately collected in states where people are poor or old or infirm.

The obvious question, then, about a fiscal union is: What’s in it for the Netherlands (or Austria or Luxembourg)? Is it worth making the euro “work” if that entails devoting several%age points of your economic output to fiscal transfers to poorer countries, indefinitely, the way Connecticut does to poorer states?

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I would not rule this out. But Greece would have to start from scratch with printing a new currency.

Would Grexit Be A Disaster? Probably Not, Says History (Arends)

If Greece rejected the international “bailout” terms, defaulted on its debts and dropped out of the eurozone, would it really face economic devastation, collapse and disaster? The IMF, the ECB and most economic “news” reports about the crisis say so. But history says something completely different. Contrary to what you may have read, lots of countries have been in a similar bind to that faced by the Greeks. And those that chose the so-called nuclear option of devaluation and default did just fine. Great Britain saw a “V-shaped” economic recovery after it dropped out of the European Exchange Rate Mechanism, the forerunner to the euro, in 1992. Real economic output expanded by 14% over the next five years, IMF records show.

The East Asian “Tiger” economies boomed after dropping their pegs to the U.S. dollar and letting their currencies plunge in 1997-1998. Ditto Russia after it defaulted and devalued in 1998. Ditto Argentina after it defaulted and devalued in 2001-2002. Those countries saw huge gains in real, inflation-adjusted output per person in the years following the alleged “nuclear” option of devaluation or default. The IMF’s own data reveal that from 1998 to 2003, Russia’s output per person soared by more than 40%. So did Argentina’s from 2002 to 2007. So much for “disaster” and “collapse.” Even the U.S. has been through this. In 1933, in the depths of the Great Depression, U.S. President Franklin Roosevelt outraged bankers by abandoning the gold standard and devaluing the dollar by 70%.

Over the next five years, gross domestic product expanded by around 40% (at constant prices). If history says financial devaluation or default may turn out just fine on Main Street, the same may even be true of bank closures. Ireland suffered three massive bank strikes in the 1960s and 1970s, including one that lasted for six months. During that time, people were effectively unable to use banks or get their hands on currency. What happened? The real economy emerged largely unscathed. People coped. They circulated IOUs and endorsed checks as makeshift currencies. They understood that “money” is just an accounting system. In other words, human beings proved to be adaptable and used some common sense, even without the help of financiers. Gosh. Who knew?

Our grandparents and great-grandparents did something similar here in the U.S. in the early 1930s, at the depths of the Great Depression’s banking crisis, records Loren Gatch, a political-science professor at the University of Central Oklahoma. Towns and even employers that lacked official currency to meet payroll or pay suppliers issued IOUs or notes, he writes. In March 1933, 24 companies in the mill town of New Bedford, Mass., effectively issued their own bank notes, and those were accepted by retailers around the town and circulated at face value, Gatch wrote. It’s hardly a surprise. Only bankers or fools would think human beings are completely powerless without banks. As for currencies, whether gold or dollars or euros or drachmas: The idea that they have power in themselves is a myth. They are purely a social construct..

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Her legacy is shot.

Angela Merkel’s Legacy At Stake As She Chooses Between Two Disasters (Guardian)

Merkel has faced a decision between two potentially disastrous scenarios. As Artur Fischer, joint CEO of the Berlin stock exchange, puts it: “Either she goes for a third bailout but risks isolating herself domestically in the process – and also faces returning to the same point we’re at now six months down the line and again a year down the line. Or she agrees to a Grexit and, as Greece sinks into more misery with pictures of their plight flashed round the world, she is blamed for that.” For weeks Merkel has talked more about Greece than Germany. So familiar is she with its politics that Bernd Ulrich, chief political correspondent of the weekly Die Zeit, half-joked that “she could co-govern in Athens any time”.

The Neue Osnabrücker Zeitung summed up in an editorial what it described as the “Herculean task” that has faced her over the past few days. “This is Angela Merkel’s hour. She was the one expected to negotiate between the Greeks and the other euro partners. She was the one expected to find the compromise between the interests of 11 million Greeks and 320 million other inhabitants of the eurozone.” She will now have to bring the decision made in Brussels back to the Bundestag, where she will find an increasingly rebellious mood in her own conservative ranks, many of whom are seething that she has not pushed for a Grexit. They have also refused to even contemplate a haircut or debt restructuring, which the IMF is insisting upon if it is to remain involved.

They all say they are representing the voices of their angry constituents. And while there is not much doubt Merkel could get a bailout deal of some sort through the Bundestag if she wanted to, thanks to the backing of her junior coalition partner, the Social Democrats, the question remains: at what cost to her? A revolt within her party ranks could prove critical to her future as German chancellor. She sees her legacy at stake just as there are murmurings that she may contemplate a fourth term in 2017. In the past days an online petition by the economist Thomas Piketty, which appeals for the German government to grant Greece a debt cut like the one Germany received to help it to restructure after the second world war, has made a huge impact.

That and headlines such as the New York Times one last week: “Germans Forget Postwar History Lesson on Debt Relief in Greece Crisis”, accompanying an article that referred to “German hypocrisy” and a picture of the signing of an agreement that effectively halved West Germany’s postwar debt in 1953, has left some Germans smarting.

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Tantalus!

The Eurogroup Gets Mythological on Greece (Lucey)

Greek myth, which is in case you missed it full of tragedies, is the cultural mine that keeps on yielding for the present crisis. Last night we had a Eurogroup meeting. Greece offered everything the Eurogroup wanted, and more. The Eurogroup demurred and the Finns, in thrall to as populist a bunch of vote grabbers as ever was in the True Finns (the hint in the name is chilling) apparently said Aye, which is apparently Finnish for yes, although as nobody speaks Finnish outside Finland, who knows. So delving into Greek myth, today we see Tantalus. Tantalus fits right on the button. He was condemned to stand in a lake of water with a grapevine over his head. If he stooped to drink the water receded, if he stretched to eat the grapes drew back.

If Greece tries to cut its way from a depression the debt burden worsens, if it seeks aid the aid is yanked out of reach. What was Tantalus’s crime? Again, it fits. He took from the gods that which they would not give, in some myths ambrosia (not the custard dish but the food of the gods), in others it was Nectar. These he distributed to humans, angering the gods who believed that these goodies were theirs to distribute and not his. Greece entered the Euro and ..well, you see it. We should also note that Tantalus had form for hiding things, notably the golden hound of Hephaestus , the smith of the gods who made all things. Greece, let us not forget, hid the true state of the finances, a well functioning state statistical apparatus being the foundation of all things in a modern economy.

Interestingly, in myth he was aided by Pandareus, who could gorge forever on the finest things and neither be satiated nor suffer. Greece was aided in its concealment of the true state of its economy by Goldman Sachs… A further crime that Tantalus committed was, in an attempt to appease the now vengeful deities, he sacrificed his son Pelops and served a Greek version of Frey Pie to the gods. They recoil and his punishment is sealed. Syriza have killed, baked and served up to the Eurozone their own mandate and policies, only to have them thrown back faceward. Mind you, in myth Pelops was revived, repaired, and taken on board by the gods, Demeter (the bountiful goddess) having eaten of the pie and wanting to turn back time. The IMF, under Lagarde, have eaten of the pie and taken on board its central spice, the need for debt relief, and are now busy with time travel experiments.

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Can’t cover all ideas in a summary. Read original.

A Union of Deflation and Unemployment (Andricopoulos)

On Twitter recently, someone posted that anyone who doesn’t understand the importance of the difference between a sovereign money supply and a non-sovereign money supply does not understand economics. I wholeheartedly agree with this. And the majority of comments I see on articles about the Greek situation confirms that most people don’t understand economics. I don’t even know where to begin with criticisms of the idea of a shared currency without shared government. There are three main problems:

Problem 1: It is very easy to get into debt: A country in the Euro has no control of its monetary policy. Therefore when Greece had negative real interest rates during the boom time, there was nothing it could do to prevent people borrowing money. When added to a government also borrowing to appease special interests, this can be disastrous. But Spain had this problem even whilst running government budget surpluses. A country in the Euro has very little control over fiscal policy due to the rules determining how much governments can borrow and save. So even if a government wanted to combat loose monetary policy with correctly tight fiscal policy, it couldn’t.

Problem 2: Once in debt is impossible to get out of debt: There are three main ways a government has historically gotten out of debt. The first is economic growth; a growing economy means that debt to GDP ratios go down as GDP rises. The second is inflation; if a government’s debt gets too large it can always resort to the printing press to help it out. The third is outright default.

Problem 3: After both of these are realised, economic growth becomes very difficult: Governments, chastened by the experience of Greece and knowing that they are effectively borrowing in a foreign currency, can not borrow much more. A sovereign nation would have no problem issuing 150 or 200% debt to GDP. The central bank would support them and they would know that real interest rates could not get too high. Not so a borrower of a foreign currency.

I think I show three things here:
• The only policy a country can follow if it wants to avoid debt crisis is to run a current account surplus.
• This leads to a policy of internal devaluation and deflation.
• This creates a positive feedback mechanism which leads to a spiral of deflation and unemployment.

This is true certainly as long as Germany insists on low inflation and trade surpluses but possibly anyway, just by the nature of the riskiness of sovereign borrowing. I would like to hereby offer my humble advice to the leaders in Europe; now is the time to give up on this unworkable idea before it becomes even more of a disaster.

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Very good. “Two crises with the same cause but very different outcomes.”

The Great Recession and the Eurozone crisis (Wren-Lewis)

The Great Recession and the Eurozone crisis are normally treated as different. Most accounts of the Great Recession see this as a consequence of a financial crisis caused by profligate lending by – in particular – US and UK banks. The crisis may have originated with US subprime mortgages, but few people blame the poor US citizens who took out those mortgages for causing a global financial crisis. With the Eurozone crisis that started in 2010, most people tend to focus on the borrowers rather than the lenders. Some ill-informed accounts say it was all the result of profligate periphery governments, but most explanations are more nuanced: in Greece government profligacy for sure, but in Ireland and other countries it was more about excessive private sector borrowing encouraged by low interest rates following adoption of the Euro.

Seeing things this way, it is a more complicated story, but still one that focuses on the borrowers. However if we see the Eurozone crisis from the point of view of the lenders, then it once again becomes a pretty simple story. French, German and other banks simply lent much too much, failing to adequately assess the viability of those they were lending to. Whether the lending was eventually to finance private sector projects that would end in default (via periphery country banks), or a particular government that would end up defaulting, becomes a detail. In this sense the Eurozone crisis was just like the global financial crisis: banks lent far too much in an indiscriminate and irresponsible way.

If borrowers get into difficulty in a way that threatens the solvency of lending banks, there are at least two ways a government or monetary union can react. One is to allow the borrowers to default, and to provide financial support to the banks. Another is to buy the problematic loans from the banks (at a price that keeps the banks solvent), so that the borrowers now borrow from the government. Perhaps the government thinks it is able to make the loans viable by forcing conditions on the borrowers that were not available to the bank.

The global financial crisis was largely dealt with the first way, while at the Eurozone level that crisis was dealt with the second way. Recall that between 2010 and 2012 the Troika lent money to Greece so it could pay off its private sector creditors (including many European banks). In 2012 there was partial private sector default, again financed by loans from the Troika to the Greek government. In this way the Troika in effect bought the problematic asset (Greek government debt) from private sector creditors that included its own banks in such a way as to protect the viability of these banks. The Troika then tried to make these assets viable in various ways, including austerity. Two crises with the same cause but very different outcomes.

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Taking Syriza apart?

Greece Prepares Itself To Face Another Year Of Political Turmoil (Observer)

Greece’s embattled prime minister is expected to come under intense fire in the coming weeks after leading figures in his own leftwing Syriza party rebelled against the adoption of further austerity as the price of keeping bankruptcy at bay. The prospect of the crisis-hit country being thrown, headlong, into political turmoil drew nearer amid speculation that Alexis Tsipras will be forced not only to reshuffle his cabinet, possibly as early as Monday, but to call fresh elections in the autumn. “I cannot support an austerity programme of neoliberal deregulation and privatisation,” said his energy minister, Panagiotis Lafazanis, after refusing to endorse further tax increases and spending cuts in an early-morning vote on Saturday.

“If accepted by the [creditor] institutions and put into practice, they will exacerbate the vicious circle of recession, poverty and misery.” The Marxist politician, who heads Syriza’s militant wing and is in effect the government’s number three, was among 17 leftist MPs who broke ranks over the proposed reforms. Other defectors included the president of the 300-seat parliament, Zoe Konstantopoulou; the deputy social security minister, Dimitris Stratoulis; and the former London University economics professor Costas Lapavitsas. All described the policies – key to securing solvency in the form of a third bailout – as ideologically incompatible with Syriza’s anti-austerity platform.

Whatever the outcome of this weekend’s emergency summit, Tsipras will face intense pressure at home when he is forced to push several of the measures through parliament. The house is expected this week to vote on tax increases and pension cuts – crucial to receiving a bridging loan that will allow Athens to honour debt payments including €3bn to the ECB on 20 July. “It is very hard to see how a government with this make-up can pass these measures,” said the political commentator Paschos Mandravelis. “Already several prime ministers have been ousted during this crisis attempting to do that very thing. The idea of a leftist trying is almost inconceivable.”

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Troika gutted the entire economy. Takes time to rebuild no matter what.

Greeks Resigned To A Hard, Bitter Future Whatever Deal Is Reached (Observer)

Greece has become so gloomy that even escapism no longer sells, the editor of the celebrity magazine OK! admits. “All celebrity magazines have to pretend everything is great, everyone is happy and relaxed, on holiday. But it is not,” says Nikos Georgiadis. Advertising has collapsed by three-quarters, the rich and famous are in hiding because no one wants to be snapped enjoying themselves – and even if OK! did have stories, a ban on spending money abroad means it is running out of the glossy Italian paper that the magazine is printed on. “We have celebrities calling and asking us not to feature them because they are afraid people will say ‘we are suffering and, look, you are having fun on the beach’,” Georgiadis says. “One did a photoshoot but then refused to do the interview. They don’t want to be in a lifestyle magazine.”

It might be easy to mock the panic of Greece’s gilded classes, if the only thing affected was the peddling of aspiration and envy. But the magazine provides jobs to many people whose lives are a world away from the ones they chronicle, and like thousands of others across Greece they are on the line as the government makes a last-ditch attempt to keep the country in the euro. “If we go back to the drachma, they told us the magazine will close. It’s possible we won’t have jobs to go to on Monday,” Georgiadis says bluntly, as negotiations with Greece’s European creditors headed towards the endgame.

Prime minister Alexis Tsipras pushed a €13bn austerity package through parliament early on Saturday, overcoming a rebellion by his own MPs and sealing a dramatic and unexpected transformation from charismatic opponent of cuts to their most dogged defender. It seemed like nothing so much as a betrayal of those he had called out in their millions less than a week earlier to reject an almost identical package of painful reforms. Greece’s creditors had soon made clear though that they were not ready to improve bailout terms, even to keep the country in the euro. And so after painful days of cash shortages, closed banks, dwindling supplies of anything imported, from medicine to cigarettes, and mounting fear, the extraordinary U-turn was met with more resignation than anger.

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In the US.

A Coming Era Of Civil Disobedience? (Buchanan)

The Oklahoma Supreme Court, in a 7-2 decision, has ordered a monument of the Ten Commandments removed from the Capitol. Calling the Commandments “religious in nature and an integral part of the Jewish and Christian faiths,” the court said the monument must go. Gov. Mary Fallin has refused. And Oklahoma lawmakers instead have filed legislation to let voters cut out of their constitution the specific article the justices invoked. Some legislators want the justices impeached. Fallin’s action seems a harbinger of what is to come in America — an era of civil disobedience like the 1960s, where court orders are defied and laws ignored in the name of conscience and a higher law. Only this time, the rebellion is likely to arise from the right.

Certainly, Americans are no strangers to lawbreaking. What else was our revolution but a rebellion to overthrow the centuries-old rule and law of king and Parliament, and establish our own? U.S. Supreme Court decisions have been defied, and those who defied them lionized by modernity. Thomas Jefferson freed all imprisoned under the sedition act, including those convicted in court trials presided over by Supreme Court justices. Jefferson then declared the law dead. Some Americans want to replace Andrew Jackson on the $20 bill with Harriet Tubman, who, defying the Dred Scott decision and fugitive slave acts, led slaves to freedom on the Underground Railroad.

New England abolitionists backed the anti-slavery fanatic John Brown, who conducted the raid on Harpers Ferry that got him hanged but helped to precipitate a Civil War. That war was fought over whether 11 Southern states had the same right to break free of Mr. Lincoln’s Union as the 13 colonies did to break free of George III’s England. Millions of Americans, with untroubled consciences, defied the Volstead Act, imbibed alcohol and brought an end to Prohibition. In the civil rights era, defying laws mandating segregation and ignoring court orders banning demonstrations became badges of honor. Rosa Parks is a heroine because she refused to give up her seat on a Birmingham bus, despite the laws segregating public transit that relegated blacks to the “back of the bus.”

In “Letter from Birmingham Jail,” Dr. King, defending civil disobedience, cited Augustine — “an unjust law is no law at all” — and Aquinas who defined an unjust law as “a human law that is not rooted in eternal law and natural law.” Said King, “one has a moral responsibility to disobey unjust laws.” But who decides what is an “unjust law”?

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Jul 062015
 
 July 6, 2015  Posted by at 9:02 am Finance Tagged with: , , , , , , , ,  13 Responses »


Dorothea Lange ‘A season’s work in the beans’, Marion County, Oregon 1939

Now that Yanis Varoufakis has resigned, in the kind of unique fashion and timing that shows us who the real men are, it’s time to clear the other side of the table as well. The new finance minister, Euclid Tsakalotos, should not have to face the same faces that led to Europe’s painful defeat in yesterday’s Greek referendum.

That would be an utter disgrace, and the EU would not survive it. So we now call for Juncker, Lagarde, Schäuble, Dijsselbloem, Draghi, Merkel and Schulz to move over.

It’s time for the Troika to seek out some real men too. It cannot be that the winner leaves and all the losers get to stay.

The attempts to suppress the IMF debt sustainability analysis were a shameful attempt to mislead the people of Greece, and of Europe as a whole. And don’t forget the US: Lagarde operates out of Washington.

It cannot be that after this mockery of democracy, these same people can just remain where they are.

It’s time for Europe to show the same democratic heart that Varoufakis has shown this morning. And if that doesn’t happen, all Europeans should make sure to leave the European Union as quickly as they can.

Because that would prove once and for all that the EU is no more than a cheap facade, a thin veil behind which something pretty awful tries to hide its ugly face.

Here is Yanis’ explanation behind his resignation:

Minister No More! (Yanis Varoufakis)

The referendum of 5th July will stay in history as a unique moment when a small European nation rose up against debt-bondage. Like all struggles for democratic rights, so too this historic rejection of the Eurogroup’s 25th June ultimatum comes with a large price tag attached. It is, therefore, essential that the great capital bestowed upon our government by the splendid NO vote be invested immediately into a YES to a proper resolution – to an agreement that involves debt restructuring, less austerity, redistribution in favour of the needy, and real reforms.

Soon after the announcement of the referendum results, I was made aware of a certain preference by some Eurogroup participants, and assorted ‘partners’, for my… ‘absence’ from its meetings; an idea that the Prime Minister judged to be potentially helpful to him in reaching an agreement. For this reason I am leaving the Ministry of Finance today. I consider it my duty to help Alexis Tsipras exploit, as he sees fit, the capital that the Greek people granted us through yesterday’s referendum. And I shall wear the creditors’ loathing with pride.

We of the Left know how to act collectively with no care for the privileges of office. I shall support fully Prime Minister Tsipras, the new Minister of Finance, and our government. The superhuman effort to honour the brave people of Greece, and the famous OXI (NO) that they granted to democrats the world over, is just beginning.

Here’s to a real man!

Time to get scared, time to change plan
Don’t know how to treat a lady
Don’t know how to be a man
Time to admit, what you call defeat
Cause there’s women running past you now
And you just drag your feet

Man makes a gun, man goes to war
Man can kill and man can drink
And man can take a whore
Kill all the blacks, kill all the reds
And if there’s war between the sexes
Then there’ll be no people left

And so it goes, go round again
But now and then we wonder who the real men are

– Joe Jackson

Jun 132015
 


Lewis Wickes Hine Night scene in Cumberland Glass Works, Bridgeton, NJ 1909

Investors Yank $9.3 Billion From Emerging Markets, Most in 7 Years (WSJ)
Fed Tantrum Sets Off Biggest Exodus From Emerging Markets Since 2008 (AEP)
Is Deutsche Bank The Next Lehman? (NotQuant.com)
Obama Suffers Stunning Loss As Democrats Defeat Trade Bill (LA Times)
Trade Bill Defeat Casts Doubt On EU-US Deal (Politico)
The Euro Won’t Survive Unless The EU Ends Greece’s Humanitarian Crisis (Bibow)
Greece: Default Ahead? (Jacques Sapir)
Brewing Conflict over Greece: Schäuble Mulls Taking on Merkel (Spiegel)
Crisis Changes Greeks’ Consumer Behavior (Kathimerini)
Happy Birthday Magna Carta (Paul Craig Roberts)
Why Do We Celebrate Rising Home Prices? (Mises Inst.)
Trapped In A Bubble (Golem XIV)
Academics Attack George Osborne Budget Surplus Proposal (Guardian)
Australian Workers ‘Stressed And Fat’ (BBC)
California Moves To Restrict Water Pumping By Pre-1914 Rights Holders (LA Times)
Canada, Tomorrow’s Superpower (Bloomberg)
US Will Call All Chimps ‘Endangered’ (NY Times)

Flowing to America.

Investors Yank $9.3 Billion From Emerging Markets, Most in 7 Years (WSJ)

Emerging markets are out of favor. Global investors have yanked $9.3 billion from stocks in developing countries in the week to Wednesday, the most since the depths of the global financial crisis in 2008. Asia has been particularly vulnerable with $7.9 billion pulled out of the region’s equity markets, the most in almost 15 years, according to data provider EPFR Global. Financial markets in emerging markets have been grinding weaker with currencies trading at their weakest levels in years, and bonds have been caught in the riptide too. Including bonds, investors have pulled out the most money since 2013’s “taper tantrum.” The dangers of emerging markets are well-known to investors and analysts, but the magnitude of this selloff has caught many by surprise.

It follows a selloff in Treasurys and German bunds that has rocked global sentiment, and comes ahead of the U.S. Federal Reserve raising interest rates later this year that is likely to send money back to developed markets. “Money is gradually leaving emerging markets, including Asia,” said Paul Chan at Invesco. “It’s a repeat of 2013, but this time we are slowly pricing in the eventual rate hike.” Mr. Chan’s fund has been cutting its investments in Southeast Asia but adding in South Korea this year. It has been overweight on China and India in recent years. Analysts say emerging-market equity-fund managers are increasingly feeling the pain of plummeting currencies in the region, which cuts into investors’ returns in stocks and bonds. “Currency is a major culprit,” Goldman Sachs analysts said. The U.S. bank forecasts another 4% drop in emerging-market currencies against the U.S. dollar over the next year.

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“..a “margin call” on $9 trillion of off-shore dollar debt, a figure that has exploded from $2 trillion fifteen years ago. ”

Fed Tantrum Sets Off Biggest Exodus From Emerging Markets Since 2008 (AEP)

Investors are withdrawing money from emerging markets at the fastest rate since the global financial crisis, raising the risk of a ‘sudden stop’ in capital flows as the US Federal Reserve prepares to turn off the spigot of cheap dollar liquidity. Data from the tracking agency EPFR show that equity funds in Asia, Latin America, and the emerging world bled $9.27bn in the week up to June 10, surpassing the exodus in the ‘taper tantrum’ in mid-2013 when the Fed first began to hint at monetary tightening. Jonathan Garner from Morgan Stanley said outflows from onshore-listed equity funds in China reached $7.12bn, the highest ever recorded in a single week. Brazil and Korea also saw large losses. The pace has quickened dramatically as the US economy gathers steam after a growth scare earlier this year.

Signs of incipient wage inflation bring forward the long-feared inflexion point when the Fed finally raises rates for the first time in eight years. Morgan Stanley said its US tracking indicator for GDP growth in the second quarter has jumped from 1.5pc to 2.7pc over the last week and a half alone as a blizzard of strong figures changes the outlook entirely. The University of Michigan’s index of consumer sentiment roared back to life in June, jumping from 90.7 to 94.6. It follows news of a surge in US retail sales in May. Small investors have been pulling funds out of emerging markets for several months but the big pension funds and institutions have until now held firm. There is a danger that these giants could suddenly start for rushing for narrow exits at the same time.

The International Monetary Fund warned in its Global Financial Stability Report in April that the asset management industry now has $76 trillion worth of investments, equal 100pc of world GDP. These funds are prone to “herding” behaviour, and have vastly increased their holdings of emerging market bonds and equities The IMF fears a “liquidity storm” once the Fed starts to tighten, causing them to pull out en masse. It has repeatedly called on EM economies to beef up their defences and curb ballooning credit before it is too late. The great worry is what will happen if Fed action causes the dollar to spike dramatically and drives up global borrowing costs, transmitting a double shock through the international financial system.

This would amount to a “margin call” on $9 trillion of off-shore dollar debt, a figure that has exploded from $2 trillion fifteen years ago. The Bank for International Settlements estimates that emerging markets now account for €4.5 trillion of this dollar debt, an unprecedented sum that escaped control over the last seven years as cheap liquidity from zero rates and quantitative easing in the West spilled into Asia, Latin America, and the rest of the EM nexus. Many of these countries were unable to defend themselves against a flood of capital, much of it on offer at a real rates of just 1pc, far too low for conditions in fast-growing countries that were then overheating. The inflows set off credit booms that are now unwinding painfully.

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And to think Deutsche was bailed out at the expense of the Greek people…

Is Deutsche Bank The Next Lehman? (NotQuant.com)

Looking back at the Lehman Brothers collapse of 2008, it’s amazing how quickly it all happened. In hindsight there were a few early-warning signs, but the true scale of the disaster publicly unfolded only in the final moments before it became apparent that Lehman was doomed. First, for purposes of drawing a parallel, let’s re-cap the events of 2007-2008: There were few early indicators of Lehman’s plight. Insiders however, were well aware: In late 2007, Goldman Sachs placed a massive proprietary bet against Lehman which would be known internally as the “Big Short”. (It’s a bet that would later profit from during the crisis). In the summer 2007 subprime loans were beginning to perform poorly in the marketplace.

By August of 2007, the commercial paper market saw liquidity evaporating quickly and funding for all types of asset-backed security was drying up. But still – even in late 2007, there was little public indication that Lehman was circling the drain. Probably the first public indication that things were heading downhill for Lehman wasn’t until June 9th, 2008, when Fitch Ratings cut Lehman’s rating to AA-minus, outlook negative (ironically, 7 years to the day before S&P would cut DB). The “negative outlook” indicates that another further downgrade is likely. In this particular case, it was the understatement of all time. A mere 3 months later, in the course of just one week, Lehman would announce a major loss and file for bankruptcy. And the rest is history.

Could this happen to Deutsche Bank? First, we must state the obvious: if Deutsche Bank is the next Lehman, we will not know until events are moving at an uncontrollable and accelerating speed. The nature of all fractional-reserve banks — who are by definition bankrupt at all times – is to project an aura of stability until that illusion has already begun to implode. By the time we are aware of a crisis – if one is in the offing — it will already be a roaring blaze by the time it is known publicly. It is by now well-established that truth is the first casualty of all banking crises. There will be little in the way of early warnings. [..]

How exposed is Deutsche Bank? The trouble for Deutsche Bank is that its conventional retail banking operations are not a significant profit center. To maintain margins, Deutsche Bank has been forced into riskier asset classes than its peers. Deutsche Bank is sitting on more than $75 Trillion in derivatives bets — an amount that is twenty times greater than German GDP. Their derivatives exposure dwarfs even JP Morgan’s exposure – by a staggering $5 trillion. With that kind of exposure, relatively small moves can precipitate catastrophic losses. Again, we must note that Greece just missed it’s payment to the IMF – and further defaults are most certainly not beyond the realm of possibility.

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Not a lot of love lost there.

Obama Suffers Stunning Loss As Democrats Defeat Trade Bill (LA Times)

President Obama’s ambitious trade agenda unraveled Friday in a stunning setback delivered by his own party as the House rejected an important piece of a package aimed at fast-tracking a controversial trade pact he is pursuing with 11 other Pacific Rim nations. Hoping to salvage what could be a key part of his legacy, Obama dashed to Capitol Hill before the vote Friday for a rare early morning meeting with Democrats. But amid fears that a trade deal would hurt American workers, even Obama’s dramatic personal intervention failed to generate the Democratic votes needed to bolster his unusual alliance with pro-trade Republicans.

The White House dismissed the vote as a “procedural snafu” and vowed to salvage the trade legislation when the House votes again next week. But the unusual defeat at the hands of the increasingly defiant liberal wing of the Democratic Party was seen as a sign of Obama’s waning influence as he approaches his final two years in office. “This is not about the president,” said Rep. Rosa DeLauro (D-Conn.), the liberal stalwart who led the opposition. “It really is all about what [lawmakers] heard from their own people, what they thought was the right thing to do.”

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It could threaten all these criminal trade deals.

Trade Bill Defeat Casts Doubt On EU-US Deal (Politico)

Japan, the European Union and other countries have been waiting years for a clear signal that President Barack Obama had the political muscle to get trade deals through Congress. They got the opposite on Friday, when Obama trekked up to Capitol Hill to plead for his trade agenda and got smacked down by fellow Democrats. That spells trouble for the proposed Trans-Pacific Partnership, a massive pact covering about 40% of world economic output. The failure of the trade bill also casts doubt on the sprawling European trade negotiations, and will make other nations less likely to trust the Obama administration’s ability to negotiate everything from auto tariffs to currency rules around the world.

Unless Obama gets the “fast track” trade promotion authority bill, there’s no end in sight for the Asia-Pacific talks between the United States, Japan, Vietnam and nine other countries, U.S. Trade Representative Michael Froman acknowledged earlier this week. Canada hasn’t even made an agricultural offer in the TPP talks and isn’t likely to do that anytime soon if Obama doesn’t get fast track. “None of the countries are willing to come to the table, have another meeting and put their final offers on the table, until they see us having TPA,” the top U.S. trade official told the President’s Export Council. “They’ve made that clear, and you can understand why. All these final issues require very difficult decisions in their own systems, and they’re only willing to do that if they feel like we have the political support here to move this forward.”

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“The euro will not survive as a prison – if not a torture chamber.”

The Euro Won’t Survive Unless The EU Ends Greece’s Humanitarian Crisis (Bibow)

It would be unfortunate for the IMF to be the party to pull the trigger in the ongoing Greek drama, just as it would be wrong for the ECB to find itself in that position. It is for no one else but Europe’s democratically elected governments to accept their shared responsibility for past mistakes – and embark on a path that promises a better future for all involved. The Greek people acknowledge that their current predicament is partly due to their society’s own failings. Even after overcoming military dictatorship and joining the EU, Greek governments generally prioritized securing the wealth and power of a small oligarchy through favoritism and corruption. This includes previous Greek governments that the “troika” chose to cooperate with in the past five years, which made no real effort to break with the past of pervasive corruption and tax evasion, and were not required to do so, either, as long as they collaborated in imposing austerity and arranging for fire sales of Greek assets.

The Syriza government has committed to reforming Greece and the ways in which it governs itself. Greece will need the support of its euro partners to erase corruption and tax evasion, for instance. The conditionality of loans should focus on what are the true structural problems of the Greek economy. And external help may well need to encompass administrative support and effective surveillance in these critical areas. But Greece does not need pressure for even deeper cuts in pensions and wages when almost half of its pensioners are already living below the poverty line, and wage cuts in the order of 20% or more have not boosted employment but propelled unemployment into inhumane territory instead.

By contrast, creditor countries, foremost Germany, have yet to acknowledge that they and their preferred austerity policies share part of the “schuld” (German for guilt) and hence should also shoulder part of the “schulden” (German for debt) that continue to suffocate Greece, preventing its renaissance and holding its people hostage in what has become Europe’s euro disgrace. German Chancellor Angela Merkel will finally need to explain to the German people what really went wrong with the euro and that the matter is truly one of shared responsibility. Failure to end Europe’s euro disgrace, the ongoing humanitarian crisis in Greece, is bound to turn the euro itself into Europe’s disgrace. The euro will not survive as a prison – if not a torture chamber. Rather, it must be a means to shared prosperity.

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Quite different from the usual analysis.

Greece: Default Ahead? (Jacques Sapir)

A Greek default would imply not only a radical devaluating of the Greek debts held bilaterally by various States of the Eurozone or held by the MES, but also the impossibility to use these titles as collateral within the mechanism of emergency liquidity assistance (ELA) created by the European Central Bank. The default would entail the immediate suspension of the ELA and would force the Greek government to use monetary instruments constituting a proto-currency and which, within weeks, would become an alternative currency. Let’s note that, in this scenario, the Greek government is compelled to create these instruments and that it can claim that it is doing so under duress, imposed by the attitude of the ECB.

Openly, the Greek government could continue to claim that it wants to stay within the Eurozone, while setting afoot the process which will in fact result in re-creating the Drachma. The Greek government could continue to claim that it did not want this default and this exit from the Euro, while preparing to cash in on the benefits from these events. And these benefits are far more considerable than what is being thought and said. The consequences of a default would be distinctly greater for the partners of Greece than for Greece itself. Considerable sums have left Greece since February. It is estimated at present that over €30 billion have left Greece since February, owned by Greek players, landing on foreign bank accounts.

Once the Drachma is created, these sums would return to Greece and, given the depreciation of the Drachma relatively to the Euro, the players (businesses and households) who had brought these liquidities out of the country, would gain in purchasing power in Greece. One can expect that the Greek government could then establish a control on exchange and skim off a small tax (5%) on these returns, which would allow households and businesses to legalize part of their assets, while giving the Greek government additional financial means to compensate that part of the population which has not been able to bring liquidities out of the country. This “return” of the money held abroad might well be the equivalent of what the Greek government asked of the European Union, that is, an investment plan.

Taking into account the amelioration in the competitiveness of Greek exports because of the depreciation of the Drachma, the positive effect of this mechanism might well be considerable. Of course, Greece will have to face an imported inflation shock. But, for a depreciation of 30% of the Drachma in relation to the Euro, this shock should not exceed 6% to 8% during the first year, and certainly less (4% to 6%) the second year. On the other hand, the positive effects on the economy (and on the sector of tourism particularly) might be quite extensive.

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Merkel’s way late in confronting Schäuble.

Brewing Conflict over Greece: Schäuble Mulls Taking on Merkel (Spiegel)

Schäuble is something of an éminence grise in the German government: He became a member of parliament in 1972, when Merkel was preparing to graduate from high school in Templin. In 1998, as head of the CDU/CSU parliamentary group in the Bundestag, he made Merkel his secretary general, but then became enmeshed in the CDU donations scandal. Merkel succeeded him in 2000. Although she’s the one in charge, he intermittently makes it clear that he remains his own man; that he doesn’t kowtow to anyone. Appointed finance minister in 2009, Schäuble remarked that Merkel likes to surround herself with people who were uncomplicated, but that he himself was not uncomplicated. He tends to be a little derisory about Merkel, admiring her hunger for power but deeming her too hesitant when the chips are down.

The euro crisis first drove a wedge between them in 2010, when they disagreed on the IMF’s contribution to the Greek rescue fund. Schäuble was against it, on the grounds that Europe should sort out its problems by itself. Merkel, however, was keen to enlist the help of a body that has clear criteria when it comes to offering aid, and which would therefore prevent the Europeans from making one concession after another. Merkel prevailed. But they’ve now traded positions. Schäuble believes that enough concessions have been made to Greece and he’s bolstered by the frustration currently rife in his parliamentary group over Merkel’s strategy. It will be hard for Merkel to secure majority support if he opposes her, so her fate is effectively in his hands.

Both of them understand the stakes, which is why they are both at pains to keep their disagreement under wraps. Whenever he’s asked if he has fallen out with Merkel, Schäuble likes to pull a shocked expression, respond with a barrage of insults and throw out terms such as “amateur economist” – although this isn’t necessarily as bad as it sounds, given that Schäuble describes himself as a “middling economist,” at least in comparison to the “great economist” Yanis Varoufakis. When it got out that Schäuble had not been invited to a recent summit at the Chancellery of the Troika, his spokesman Martin Jäger played down the snub. Government spokesman Steffen Seibert, meanwhile, insisted that “the Chancellor and the Finance Minister have an excellent working relationship that is both friendly and trusting.”

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Duh!

Crisis Changes Greeks’ Consumer Behavior (Kathimerini)

Once-profligate Greeks have radically changed their consumer habits since the start of the crisis, becoming more frugal in their purchases, even when it comes to basic necessities, and it appears that what started as a response to straitened times may become entrenched in a more permanent pattern. Indeed, as the crisis drags on, the number of Greeks who are more cautious with their purchases is on the rise, not just as a result of the toll the crisis has taken on their budgets but also to a great degree because they are starting to develop a more mature consumer conscience – albeit as a result of the violent adjustment to austerity.

The data in the latest study of consumer behavior by the Marketing Laboratory of the Athens University of Economics and Business (AUEB) are revealing. The study period began in November 2014 and ended on January 31, 2014, and was based on phone interviews with 1,437 consumers. According to the findings, seven in 10 consumers now restrict their purchases to the bare necessities, slightly more than two years ago, when the figure was six in 10. This trend has had a significant impact on the sales of products that fall into the “spontaneous purchases” category, such as sweets, snacks and chewing gum. Also 74% said they purchase fewer items.[..]

On the subject of supermarkets, the study found that poorer households with a monthly income of €1,000 or less spend more than a quarter of their income on supermarket purchases, explaining the overall change in consumer behavior noted over the past few years. The reason is simple: While prices have gone down, they have done so at a much smaller rate than incomes. [..] “What the data suggest is that the high prices at supermarkets are a much bigger social problem than high prices in other sectors of the economy as purchases there concern basic goods and the burden is heavier on the poorest households,” notes Giorgos Baltas, the coordinator of the study and director of the university’s postgraduate marketing and communication program.

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“Western capitalism is a looting mechanism. Greece is being looted as was Ireland, and Italy and Spain will not escape looting unless they renege on their debts and leave the EU.”

Happy Birthday Magna Carta (Paul Craig Roberts)

Monday, June 15, 2015, is the 800th anniversary of Magna Carta.[..] Beginning with the Clinton Administration and rapidly accelerating with the George W. Bush and Obama regimes and Tony Blair in England, the US and UK governments have run roughshod over their accountability to law. Both the US and UK in the 21st century have gone to numerous wars illegally under the Nuremberg Standard established by the US and UK following Germany’s defeat in WWII and used to execute Germans for war crimes. The US and UK claim that unlike Germany they are immune to the very international law that they themselves established in order to punish the defeated Germans. Washington and London can bomb and murder at will, but not Germany.

Both governments illegally and unconstitutionally (the UK Constitution is unwritten) spy on their citizens, and the Bush and Obama executive branches have eviscerated, with the complicity of Congress and the federal courts, the entirely of the US Constitution except for the Second Amendment, which is protected by the strong lobby of the National Rifle Association. If the gun control “progressives” have their way, nothing will be left of the US Constitution. Washington and its European satellites have subordinated law to a political and economic hegemonic agenda. Just as under the heyday of colonialism when the West looted the non-white world, today the West loots its own. Greece is being looted as was Ireland, and Italy and Spain will not escape looting unless they renege on their debts and leave the EU.

Western capitalism is a looting mechanism. It loots labor. It loots the environment, and with the transpacific and transatlantic “partnerships” it will loot the sovereign law of countries. For example, France’s laws against GMOs become “restraints on trade” and subjects France to punitive law suits by Monsanto. A new slave existence is being created in front of our eyes as law ceases to be a shield of peoples and becomes a weapon in the hands of government. Eight hundred years of reform is being overturned as Washington and its vassals invade, bomb, and overthrow governments that are out of step with Washington’s agenda. Formerly self-sufficient agricultural communities are becoming wage slaves for international agribusiness corporations. Everywhere privilege is rising above law and justice is being lost.

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Because the media tell us to.

Why Do We Celebrate Rising Home Prices? (Mises Inst.)

In recent years, home price indices have seemed to proliferate. Case-Shiller, of course, has been around for a long time, but over the past decade, additional measures have been marketed aggressively by Trulia, CoreLogic, and Zillow, just to name a few. Measuring home prices has taken on an urgency beyond the real estate industry because for many, home price growth has become something of an indicator of the economy as a whole. If home prices are going up, it is assumed, “the economy” must be doing well. Indeed, we are encouraged to relax when home prices are increasing or holding steady, and we’re supposed to become concerned if home prices are going down. This is a rather odd way of looking at the price of a basic necessity.

If the price of food were going upward at the rate of 7 or 8% each year (as has been the case with houses in many markets in recent years) would we all be patting ourselves on the back and telling ourselves how wonderful economic conditions are? Or would we be rightly concerned if incomes were not also going up at a similar rate? Would we do the same with shoes and clothing? How about with education? With housing, though, increases in prices are to be lauded, we are told, even if they outpace wage growth. But in today’s economy, if home prices are outpacing wage growth, then housing is becoming less affordable. This is grudgingly admitted even by the supporters of ginning up home prices, but the affordability of housing takes a back seat to the insistence that home prices be preserved at all costs.

Behind all of this is the philosophy that even if the home-price/household-income relationship gets out of whack, most problems will nevertheless be solved if we can just get people into a house. Once someone becomes a homeowner, the theory goes, he’ll be sitting on a huge asset that (almost) always goes up in price, meaning that any homeowner will increase in net worth as the equity in his home increases. Then, the homeowner can use that equity to buy furniture, appliances, and a host of other consumer goods. With all that consumer spending, the economy takes off and we all win. Rising home prices are just a bump in the road, we are told, because if we can just ge everyone into a home, the overall benefit to the economy will be immense.

Not surprisingly, we find a sort of crude Keynesianism behind this philosophy. In this way of thinking, the point of homeownership is not to have shelter, but to acquire something that will encourage more consumer spending. In other words, the purpose of homeownership is to increase aggregate demand. The fact that you can live in the house is just a fringe benefit. This macro-obsession is part of the reason why the government has pushed homeownership so aggressively in recent decades. The fly in the ointment, of course, is if home prices keep going up faster than wages -ceteris paribus- fewer people will be able to save enough money to come up with either the full amount or even a sizable down payment on a loan.

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Excellent.

Trapped In A Bubble (Golem XIV)

Caterpillar (CAT) had been using more and more of its cash to buy back its own shares inflating the apparent demand for them and therefore their price. It’s not illegal, but what does it do for the idea that share price indicates what a company is worth? And where was CAT getting the money with which to buy those shares? I doubt it was from profits given the long cumulative decline in sales. More likely it was from selling bonds i.e. using borrowed money. And indeed that seems to be the case. In May of 2014 CAT sold $2 billion of debt some of it dated as long as 50 years. So let’s take a look at what we have. In May of 2014, despite having already suffered a year of declining sales, CAT shares were the second best performing shares on the Dow Jones.

Who was so keen to buy all their shares? Who knows. But CAT itself had just spent $175 million in buying their own shares in the first quarter (when it was the second best performing share on the DOW) and in the last quarter of the year went on to buy another 250 million dollars worth. In fact, and perhaps most critically, in January the CAT board had authorized $12 billion for buy-back. So the market know that a lot of shares were going to be bought up…by CAT. And not at bargain basement price either. Take a look at the record of their share price above and you’ll see that the board had authorized using borrowed money to buy their shares at around the highest price they had ever been.

Hmm. Did buying all those shares encourage others to do likewise, especially knowing that CAT had a war chest of $12 billion earmarked for buying shares? Any ‘investor’ would know there was a buyer in the market who would be ready and willing to buy them back from him. The upshot would be a guaranteed buoyant market in CAT shares at a time when without such a buoyant demand a year of declining sales might just possibly have led to a steep decline in share price. Of course the official rationale for taking on debt to buy back shares is that debt costs are now low so its a good time to do it. The problem is that while in the short term it improves the look of the company’s share price and things like return on equity, it locks CAT, and any company that does the same, in to paying out interest on debt over the long term.

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To paraphrase Steve Keen: Osborne’s understanding of economics is at a kindergarten level.

Academics Attack George Osborne Budget Surplus Proposal (Guardian)

George Osborne’s plan to enshrine permanent budget surpluses in law is a political gimmick that ignores “basic economics”, a group of academic economists has warned. Responding to the chancellor’s Mansion House speech earlier this week, they said a law forcing the government to cut spending or raise taxes every year to generate a budget surplus, characterised as Micawber economics, would suck the economy dry and within a few years could trigger another credit crunch. In a letter to the Guardian, coordinated by the Centre for Labour and Social Studies, 77 of the best-known academic economists, including French economist Thomas Piketty and Cambridge professor Ha-Joon Chang, said the chancellor was turning a blind eye to the complexities of a 21st-century economy that demanded governments remain flexible and responsive to changing global events.

Piketty signed the letter alongside eminent economics professors from many of Britain’s top universities. Other signatories of the letter include former Bank of England monetary policy committee member David Blanchflower, Diane Elson, emeritus professor of economics at the University of Essex and chair of UK Women’s Budget Group alongside professors of economics from Oxford, Leeds and London universities. In a swipe at what they said was a “risky experiment with the economy in order to score political points”, they argued Osborne was guilty of adopting a gimmick designed to outmanoeuvre his opponents. The tough message follows the chancellor’s annual Mansion House speech in the City, during which he said the government should be forced by law to bring down the UK’s debt mountain to protect the economy against future shocks.

The academics said Osborne was shifting the burden of debt from the government to ordinary households because “surpluses and debts must arithmetically balance out in monetary terms”. “The government’s budget position is not independent of the rest of the economy and if it chooses to try to inflexibly run surpluses, and therefore no longer borrow, the knock-on effect to the rest of the economy will be significant,” they said. “Households, consumers and businesses may have to borrow more overall, and the risk of a personal debt crisis to rival 2008 could be very real indeed.”

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“..but the US is probably a bit worse that we are.”

Australian Workers ‘Stressed And Fat’ (BBC)

Australia’s workforce is affected “in a major way” by poor mental health, stress and obesity, a new study has found. The average Australian employee is stressed and overweight – about half the 30,000 employees surveyed were physically inactive, the report found. The study, by the University of Wollongong in partnership with Workplace Health Association Australia (WHAA), spans 10 years of data. Workers also showed other risk factors. The report found that 65.1% of the employees had reported “moderate to high stress levels” and that 41% had psychological distress levels considered to be “at risk”. The WHAA said that trends around employee health had been examined over a 5-to-10-year period and that the industries covered included banking and finance, legal, transport and storage, in both metropolitan and rural areas.

The study said its objectives were to present an analysis of employee health data from the five organisations, all members of the WHAA, who participated in the project. Dr John Lang, WHAA’s chief executive, told the BBC that the average employee “was seeing a 2.4% reduction in productivity, on average, per risk factor”. Risk factors listed in the study include high blood pressure, high cholesterol, physical inactivity, psychological distress, smoking and obesity. “So if the average employee has four risk factors – that’s four times a 2.4% reduction in productivity,” Dr Lang said. “And this means our workforce is being impacted in a major way by their poor lifestyle and physical health. It’s a global problem in the Western world, but the US is probably a bit worse that we are.”

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Early Days.

California Moves To Restrict Water Pumping By Pre-1914 Rights Holders (LA Times)

For the first time in nearly 40 years, state regulators are telling more than 100 growers and irrigation districts with some of the oldest water rights in California that they have to stop drawing supplies from drought-starved rivers and streams in the Central Valley. The curtailment order, issued Friday by the State Water Resources Control Board, has been expected for weeks. Earlier this spring, the board halted diversions under some 8,700 junior rights. With snowmelt reduced to a trickle this year, there simply isn’t enough water flowing in rivers to meet the demand of all those with even older rights predating 1914. And as flows continue to decline this summer, board officials said, they expect to issue more curtailments, stopping river pumping by more senior diverters.

The effect of the curtailments, which affect water users with rights dating to 1903, will vary. Many have water in storage that they can continue to use. Utilities can keep using flows for hydropower production as long as the water is returned to the rivers. Some growers and ranchers also have groundwater supplies that are unaffected by the order. A few communities, including Chico and Nevada City, have to stop river withdrawals under the order. But Thomas Howard, the state board’s executive director, said they have alternative supplies. “Each water-right holder has different options available to them,” he added. Still, the fact that the state is reaching back more than a century in the hierarchy of California water rights highlights the withering hold of a drought that has also led to the state’s first mandatory cuts in urban use.

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Being semi-Canadian, this sort of nonsense amuses me to no end.

Canada, Tomorrow’s Superpower (Bloomberg)

With a population of only 31.5 million (in 2013), a famously frigid climate and a below-replacement fertility rate, Canada would seem an unlikely candidate to become a superpower. But Canada has three huge, fundamental strengths that will almost certainly be telling in the long run. These are natural resources, good government and an almost unbelievably tolerant and open culture. In terms of natural resources, Canada is almost unmatched. In terms of renewable freshwater – the best candidate for the essential scarce resource of the next two centuries – Canada is exceeded only by the U.S. and Brazil. Its %age of arable land, at 4.6%, is relatively small, but this probably will increase as climate change proceeds and the glaciers retreat.

Basically, there is room for a lot more people in Canada. Good government is another hallmark of Canadian strength. Canada regularly ranks in the top 10 least-corrupt countries in the world, according to Transparency International. The U.S., in comparison, only makes it to the lower reaches of the top 20. That’s especially impressive given Canada’s rich endowment of fossil fuels, which usually causes countries to become more corrupt – a phenomenon known as the Resource Curse. Canada’s institutions, derived from the very best of the U.K., are rock solid. It is probably because of these high-quality institutions that Canada was able to implement universal health care.

Whatever you think of the merits of universal health care, it definitely requires that citizens trust their government. In a country as spread-out and diverse as Canada, attaining a level of public trust equivalent to that received by the ethnically homogeneous countries of Europe is quite a feat. And Canada’s strong institutions have allowed it to implement less controversial economic policies, such as a low corporate tax rate (15%, compared with the U. S.’s 35%). Basically, Canada can usually get things done a lot better than the U.S.

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Presumably includes former presidents.

US Will Call All Chimps ‘Endangered’ (NY Times)

All chimpanzees will be designated as endangered under the Endangered Species Act, the United States Fish and Wildlife Service announced Friday. The move follows a petition filed in 2010 by Jane Goodall, The Humane Society of the United States and other groups to eliminate a longstanding distinction between the legal status of captive chimpanzees, which were previously listed as “threatened,” and their wild counterparts, which have been deemed “endangered” for decades. With the new designations, chimpanzees held in captivity in the United States will receive the same protections as wild chimps under the Endangered Species Act. Biomedical research, interstate trade, and export and import of captive chimpanzees will now require permits issued by the Fish and Wildlife Service. The new rules will become official on June 16 and will go into effect after a 90-day grace period on Sept. 14.

The regulations do not require that people who privately own chimpanzees obtain a permit to keep them, nor do they require permits to use chimpanzees in the entertainment industry, according to Dan Ashe, the United States Fish and Wildlife Service’s director. He said that the previous distinctions sent a mixed signal to the public and created the impression that chimpanzees were not in dire need of help. “At the time we thought it was important to encourage breeding of captive chimps to expand their numbers,” said Mr. Ashe. “But we expanded a culture of treating these animals as a commodity for research, sale, import and export, and entertainment. That has undermined the conservation of chimpanzees in the wild.” Chimpanzees once numbered about a million in the early 1900s, but widespread habitat loss and poaching have caused their numbers to decline. Currently, there are estimated to be between 172,000 and 300,000 worldwide, according to the Jane Goodall Institute.

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May 142015
 
 May 14, 2015  Posted by at 9:58 pm Finance Tagged with: , , , , , ,  13 Responses »


Harris&Ewing Washington Monument, view from air 1919

I know I’ve talked about this before, but it just keeps coming and it keeps being crzay. Bloomberg ‘reports’ that the ‘German Finance Ministry’, let me get this right, “is supporting the idea of a vote by Greek citizens to either accept the economic reforms being sought by creditors to receive a payout from the country’s bailout program or ultimately opt to leave the euro.” And that’s it.

They ‘report’ this as if it has some sort of actual value, as if it’s a real thing. Whereas in reality, it has the exact same value as Greek Finance Minister Varoufakis suggesting a referendum in Germany. Or Washington, for that matter. Something that Bloomberg wouldn’t even dream of ‘reporting’ in any kind of serious way, though the political value would be identical.

Apparently there is some kind of consensus in the international press – Bloomberg was by no means the only ‘news service’ that ‘reported’ this – that Germany has obtained the right to meddle in the internal politics of other eurozone member nations. And let’s get this one thing very clear: it has not.

No more than the Greek government has somehow acquired the right to even vent its opinions on German domestic issues. It is a no-go area for all European Union countries. More than that, it’s no-go for all nations in the world, and certainly in cases where governments have been democratically elected.

So why do Bloomberg and Reuters and all the others disregard such simple principles? All I can think is they entirely lost track of reality, and they live in a world where reality is what they say it is.

Now, I know that Schäuble ‘merely’ said – I quote Bloomberg -: “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.”

That’s admittedly not the same thing that Bloomberg makes of it, though it’s possible that the ‘reporter’ got some additional background information from the German Finance Ministry, and that that’s the reason the ministry gets mentioned, instead of just Schäuble.

But that still doesn’t make it alright by any stretch of the imagination. The EU, and the eurozone, are made up of sovereign nations. Who function in a system of equal partners, certainly from a political point of view. So the German FinMin has no business even talking about a Greek referendum, no more than the Greeks have talking about a German referendums. And Angela Merkel should be on his case for this. But she’s not. At least not in public.

Whether or not Greece has a referendum -about the euro or anything else- is up to the Greek people, and first of all to the government they elected only 3.5 months ago. It has absolutely nothing to do with whoever is in charge in Berlin, or Paris, or even in the EU headquarters in Brussels. It’s a fatal mistake to think otherwise. Bloomberg has made that fatal mistake. Schäuble has come so close Athens should file a complaint against him.

Granted, all parties involved may be influenced by what happened 4 years ago -more Bloomberg-:

Schaeuble’s stance on a Greek plebiscite is a departure from Germany’s position in 2011. Back then, Prime Minister George Papandreou dropped his plan for a referendum after Chancellor Angela Merkel and French President Nicolas Sarkozy urged him not to hold the vote.

That referendum involved a haircut on Greek debt ‘negotiated’ by the troika, which Papandreou wanted the Greek people to vote on. And Merkel and Sarkozy did much more than ‘urge’ Papandreou not to hold the vote. They were afraid it would drive Greece from the eurozone, and scared the sh*t out of him so much he withdrew the plan a few days after proposing it.

Which is just another case of Euro nations meddling in the internal affairs of a fellow member nation. Something for which there wasn’t then, and still isn’t now, any political or legal support or framework inside the EU. Still, Brussels, Berlin and Paris applied similar pressure on Italy PM Berlusconi in those days, and installed – helped install – a technocrat PM, Mario Monti. In Greece, they got Papademos. Both Papandreou and Berlusconi were gone soon after the ‘pressure’ was applied.

That’s how Europe operates. And they have no legal right to do it. But that you won’t read at Bloomberg. The whole thing is so accepted that not even Syriza tells the Germans – or Bloomberg for that matter – to shut their traps. Even though they would have a lot more right to do that than Schäuble has to comment on internal Greek affairs.

And from where I’m sitting that means that Ashoka Mody’s piece for Bruegel is too little too late. Nice try but..

Europe’s Integration Overdrive

The problems will worsen in Greece and, will inevitably, arise elsewhere. The economic and political costs of breaking the Eurozone are so horrendous that the imperfect monetary union will be held together. Instead, the cost of the ill-judged rush to the euro and mismanagement of Greece will eventually be a substantial forgiveness of Greek debt.

But this is a good moment to step back and loosen European ties. As Schuman said, “Europe will not be built according to one plan.” The task is to create a de facto solidarity—not to force a fragile embrace. A new architecture should scale back the corrosive power relationships of centralized economic surveillance. Let nations manage their affairs according to their priorities.

And put on notice private creditors that they will bear losses for reckless lending. The European fabric -held together by commercial ties- is fraying as European businesses seek faster growing markets elsewhere. That fabric could tear if political discord and economic woes persist. History and Schuman will be watching.

Things have moved way beyond where Mody thinks they are at present. The secret ingredient is simply the crisis. The way the eurozone was hastily slapped together allows only for good times. The idea was that as long as things go well, nobody would notice the cracks. But Europe has been nothing but cracks for 7 years now, and there’s no end in sight.

The Greek people can vote all they want to end the misery Europe has inflicted on them, it doesn’t matter to the major powers in the union. They simply blame it all on the same Greeks, and judging from how Bloomberg approaches the issue, they have the upper hand. They live above their means, they’re wasteful and they’re lazy. That’s the portrait painted, and that’s how 90% of the world therefore sees them.

It makes no difference whether it is true or not. It’s all just about who has more money and power and press; they get to decide what people think about other people.

Does the euro have a future? If it does, it won’t look anything like it does today. The eurozone has only ever been a mechanism to make more money flow from the south to the north. And now the north will have to come up with a measure of solidarity, of being an actual union, and they bluntly refuse.

Rich European countries are all led by politicians who want to win their next elections. And these are national elections, not European elections. Those hardly matter. Because Europe is made up of sovereign nations. And that’s why the European Union in its present shape is doomed to fail.

Brussels will always clamor for a closer union, politically, fiscally, economically. But the way Germany et al has treated Greece and Italy and Spain over the past 7 years makes abundantly clear that such a close union will never come to fruition. These are all countries that are proudly independent, that commemorate battles from hundreds of years ago where their ancestors shed the blood and gave the lives that made them independent.

They’re not going to let Germany and France and Holland call the shots in their economies and countries now. Not a chance.

Europe only has a -peaceful- future as a continent of independent nations that work together where they can. To get there, they will need to abolish the euro and completely redo the union project, from scratch, close down all offices in Brussels, and they will have to do it soon, or there will be no peace.

Meanwhile, what’s left for Greece in Brussels that is beneficial to the country? I don’t see it. It makes me think more of a Stockholm syndrome by the hour. Get out, get your own currency, negotiate a treaty with Italy and Spain, maybe France. But don’t stay in a ‘union’ with outsiders who think they can tell you, Greeks, how to run a democracy, or when to hold a referendum. That can only be a road to nowhere.

Mar 172015
 
 March 17, 2015  Posted by at 2:37 am Finance Tagged with: , , , , , ,  8 Responses »


Jack Delano Union Station, Chicago, Illinois 1943

I need to start of off the bat with an update to this piece, which I started writing yesterday, since I now know that Angela Merkel actually did invite Alexis Tsipras on Monday. It only took her two months…. But that doesn’t take away anything from my point that Merkel has been sorely lacking and missing, it just goes to prove that point.

And if she doesn’t get her act together very quickly (why not ask Tsipras to be in Berlin tomorrow morning?!), this will, I’ve said it before, go down as her main legacy. She will be known as the person who let Europe slip into war, for no good reason whatsoever. Here’s what I started off with last night (Oz time):

The increasing ugliness of the ‘negotiations’ between the Greek Syriza government and the rest of the eurozone, which is ruled by the German government, needs to be halted and put in reverse. There is an urgent need for a detente, for cooler heads and for trust. And there is only one person who can act to create these things: Angela Merkel. But Merkel is nowhere to be found or seen.

The increasing ugliness of the propaganda war the west is waging against Russia and its president Vladimir Putin, also needs to be halted. There is an even more urgent need there for a detente, for cooler heads and for trust. There is only one person who can act to create these things: Angela Merkel. But Merkel is AWOL.

There are German voices in the Putin case that call for reason and quiet, and that have labeled people like NATO head Stoltenberg, NATO General Breedlove and US State Department ‘Assistant’ Victoria Nuland more or less insane. But Merkel’s voice is not among them, nowhere to be heard.

German Finance Minister Wolfgang Schäuble was born in 1942. That means he was alive when German troops committed the worst of their war crimes and atrocities on Greek soil, and on Greek people, which the Syriza government says it wants to receive war reparations for. But Schäuble high-handedly poo-poohs these demands, claiming everything has been settled decades ago. As if he were talking about things that happened 1000 years ago or more.

They did not, Mr. Schäuble, they happened during your lifetime, and no level of high-handedness, not one level of it, is appropriate here on your part. The only appropriate reaction is humbleness and the highest level of respect you are capable of. Whether there’s a legal issue is something for legal experts to decide, but until then, you have no right to poo-pooh anything.

Besides, you’re a finance minister, and this is not a finance issue, it’s far too sensitive to be regarded as such. The only person who should indeed address it is your boss, Angela Merkel. But no-one’s seen her around.

Merkel should have told Schäuble weeks ago to keep his trap shut, but she has instead allowed him to antagonize Athens even more. And blame the Greeks for that.

It may already be too late when it comes to the Ukraine issue. Angela should have intervened a long time ago. She did not. She suddenly turned her back on her friend Vladimir, for reasons she never explained, and allowed US and NATO hotheads to completely take over European politics. Never a good idea, for obvious reasons.

And now she may be stuck with the consequences: a war on her doorstep. Which, in reality, has of course already started. 6000 Ukrainians are gone, millions have been forced to leave their homes. Angela Merkel could have prevented most of this from happening. Blood on your hands, girl.

She let Schäuble get out of hand with his hugely out of place and out of whack comments on Greece’s financial situation, on Varoufakis and on the crimes perpetrated by his parents’ generation in not just Greece, but certainly also in Greece. Comments not befitting the European Union’s de facto political and economical leader. And that has left space for extremists to come in and take the lead over from Merkel.

Likewise, she’s let Breedlove and Nuland take the lead in the Ukraine issue, while she could have easily defused it, leading to a situation where Putin this weekend made it a point to say that he felt so strongly about Crimea, he would have been ready to alert his nuclear capacity. That the western press chooses to put that fact in entirely different, and far more threatening terms, was and is only to be expected, for Angela as much as for you and me.

The most powerful woman in the world had better stand up now, or it will be too late in both instances.

Greece will be forced into a Grexit or Grexident, neither of which EU leaders have anywhere near the grip on that they try to convince us they have; more countries will leave after Greece, and financial markets will start betting on just that.

And the US and NATO will force Ukraine into a full blown war theater, something Merkel should never ever want to her immediate eastern flank, and something that was always entirely preventable is she had put her foot down.

Is Angela going to be the umpteenth tragic lady with a tragic footprint in history, or will she wake up in the nick of time, stand up, and say: no more of this?! We’ll soon know.

(posted from Melbourne Tullamarine Airport)

Feb 212015
 


Russell Lee “Yreka, California. Magazine stand” 1942

German-Led Bloc Willing to Let Greece Leave Euro: Malta (Bloomberg)
A Lawyer’s Mindset Where An Economist’s Is Needed? (Steve Keen)
Greece Should Not Give In to Germany’s Bullying (Legrain – Foreign Policy)
Tentative Deal For Extension Agreed At Eurogroup (Kathimerini)
The Euro’s Up In Smoke (Beppe Grillo)
Eurozone Chiefs Strike Deal To Extend Greek Bailout For Four Months (Guardian)
Greece Bends To Eurozone Will To Find Short-term Agreement (Open Europe)
Greece’s Debt Deal Isn’t The End Of Eurozone Drama (MarketWatch)
ECB’s Draghi Wants To Buy Bonds, But Who Will Sell? (Reuters)
It’s Up To Germany To End The Game Of Chicken With Greece (Guardian)
Is Greek PM Alexis Tsipras Going To Be Russia’s ‘Trojan Donkey’? (NewsCorp)
Has Greece’s ‘Lehman Moment’ Finally Arrived? (CNBC)
Expectations And Reality: What Maidan Gave Ukraine’s Economy (RT)
US Units of Deutsche Bank, Santander Likely to Fail Fed Stress Test (WSJ)
The US Government’s Stupid Tax War On Expatriates (MarketWatch)
NYC Could See 6-Foot Sea Rise By 2100 (NewsMaine)

“We are perfectly prepared to refrain from any moves that would jeopardize financial stability or Greek competitiveness..”

German-Led Bloc Willing to Let Greece Leave Euro: Malta (Bloomberg)

Germany and its allies are ready to let Greece leave the euro unless Prime Minister Alexis Tsipras accepts the conditions required to extend his country’s financial support, according to Malta’s finance minister, Edward Scicluna. Greece’s creditors are cranking up the pressure on Tsipras as he seeks a deal to prevent his country defaulting on its obligations as early as next month. By bowing to German demands, the premier risks a domestic backlash from voters and party members whom he’s promised an end to austerity. “Germany, the Netherlands and others will be hard and they will insist that Greece repays back the solidarity shown by the member states by respecting the conditions,” Scicluna said in an interview. “They’ve now reached a point where they will tell Greece ‘if you really want to leave, leave.’”

Talks between euro-region finance ministers in Brussels Friday aimed at agreeing an extension of Greece’s aid program were pushed back by an hour and a half, the group’s chairman, Dutch Finance Minister Jeroen Dijsselbloem, said on Twitter. The meeting will begin at 4:30 p.m. Brussels time and Dijsselbloem will make a statement at 3 p.m.nIn a formal request on Thursday to extend Greece’s euro-area backed rescue beyond its end-of-February expiry for another six months, Greek Finance Minister Yanis Varoufakis said he would accept the financial and procedural conditions of the Germany’s Finance Ministry almost immediately rebuffed the latest Greek formula, saying the country needs to make a firmer commitment to austerity. A “positive” conversation between Tsipras and German Chancellor Angela Merkel later on Thursday sparked investor optimism for a deal.

“We are perfectly prepared to refrain from any moves that would jeopardize financial stability or Greek competitiveness,” Varoufakis said in an interview Friday with The Telegraph. “But what we cannot accept is that the fiscal adjustment, agreed by the last government, be carried through just because the rules say so.” Investors are pricing in a positive outcome to the Eurogroup meeting with Greek bonds and stocks rising for a third day.

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“..is there a way to frame the Greek case in a way that a lawyer might understand?”

A Lawyer’s Mindset Where An Economist’s Is Needed? (Steve Keen)

A Twitter correspondent pointed out a simple fact that makes Schäuble’s inflexibility in negotiations with Varoufakis explicable: though he is a Minister of Finance, his PhD is in law. So is he implicitly approaching these negotiations as a lawyer would? Because from that point of view, what the Greeks are trying to do is to renege on a contract. And for a lawyer, changing the terms of a contract after you have signed it is a no deal. It’s either carry out the contract, or I’ll sue. Varoufakis, of course, is approaching the negotiations as an economist. From his point of view, the terms of the Troika’s package are a set of economic policies that have failed. And if policies have failed, the sensible economist tries different ones.

So did Greece sign a legal document, whose principles have to be adhered to, even if they have consequences the Greeks didn’t foresee when they signed? Or did Greece accept a set of economic policies, whose continuance should depend on whether those policies are achieving their intended objectives? There’s no doubt that the latter is the case. But if Schäuble is treating it as a legal treaty, then the fact that this is actually a set of failed economic policies, and not a legally binding treaty, won’t matter. He will refuse to “renegotiate the terms of the contract”. The negotiations will be such in name only.

So is there a way to frame the Greek case in a way that a lawyer might understand? Any contract involves consideration by each party to the other. In a contract of sale, the object being sold is the consideration from the seller; the money for the sale is the consideration from the buyer. So what is the consideration in this case? It is a combination of two things: the loans that were extended to the Greeks, and the Greeks carrying out an economic program which promised a set of economic outcomes—the key components of which are shown in Figure 1. These included that real economic growth would commence in 2012, and that unemployment would peak at 15.3% in 2012, and fall to 14.6% by 2014. [..]

Schäuble could then find himself repeating the whole process all over again, but this time with an opposite party who will delight in breaking agreements. He clearly hasn’t enjoyed negotiating with a leftwing academic economist who wears a leather jacket and wears his shirt outside his trousers. How, I wonder, will he enjoy negotiating with someone who prefers to wear jackboots?

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“Greece must be bled dry to service its foreign creditors in the name of European solidarity..”

Greece Should Not Give In to Germany’s Bullying (Legrain – Foreign Policy)

Ever since the initial bargain in the 1950s between post-Nazi West Germany and its wartime victims, European integration has been built on compromise. So there is huge pressure on Greece’s new Syriza government to be “good Europeans” and compromise on their demands for debt justice from their European partners – also known as creditors. But sometimes compromise is the wrong course of action. Sometimes you need to take a stand. Let’s face it: no advanced economies in living memory have been as catastrophically mismanaged as the eurozone has been in recent years, as I document at length in my book, European Spring.

Seven years into the crisis, the eurozone economy is doing much worse than the United States, worse than Japan during its lost decade in the 1990s and worse even than Europe in the 1930s: GDP is still 2% lower than seven years ago and the unemployment rate is in double digits. The policy stance set by Angela Merkel’s government in Berlin, implemented by the European Commission in Brussels, and sometimes tempered – but more often enforced – by the ECB in Frankfurt, remains disastrous. Continuing with current policies — austerity and wage cuts, forbearance for banks, no debt restructuring or adjustment to Germany’s mercantilism — is leading Europe into the ditch; the launch of quantitative easing is unlikely to change that. So settling for a “compromise” that shifts Merkel’s line by a millimeter would be a mistake; it must be challenged and dismantled.

While Greece alone may not be able to change the entire monetary union, it could act as a catalyst for the growing political backlash against the eurozone’s stagnation policies. For the first time in years, there is hope that the dead hand of Merkelism can be unclasped, not just fear of the consequences and nationalist loathing. More immediately, Greece can save itself. Left in the clutches of its EU creditors, it is not destined for the sunlit uplands of recovery, but for the enduring misery of debt bondage. So the four-point plan put forward by its dashing new finance minister, Yanis Varoufakis, is eminently sensible.

This involves running a smaller primary surplus – that is a budget surplus, excluding interest payments – of 1.5% of GDP a year, instead of 3% this year and 4.5% thereafter. Some of the spare funds would be used to alleviate Greece’s humanitarian emergency. The crushing debts of more than 175% of GDP would be relieved by swapping the loans from eurozone governments for less burdensome obligations with payments tied to Greece’s GDP growth. Last but not least, Syriza wants to genuinely reform the economy, with the help of the Organization for Economic Cooperation and Development (OECD), notably by tackling the corrupt, clientelist political system, cracking down on tax evasion, and breaking the power of the oligarchs who have a stranglehold over the Greek economy.

Had the Varoufakis plan been put forward by an investment banker, it would have been perceived as perfectly reasonable. Yet in the parallel universe inhabited by Germany’s Finance Minister Wolfgang Schäuble, such demands are seen as “irresponsible”: Greece must be bled dry to service its foreign creditors in the name of European solidarity.

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“Only approval of the conclusion of the review of the extended arrangement by the institutions in turn will allow for any disbursement of the outstanding tranche of the current EFSF program..”

Tentative Deal For Extension Agreed At Eurogroup (Kathimerini)

Greece and the Eurogroup agreed on Friday a deal to extend the country’s loan agreement for another four months, pending on lenders approving reform proposals due to be submitted by the Greek side on Monday. The terms of the agreement reached after many hours of talks in Brussels Friday means that the country’s lenders – the European Central Bank, the European Commission and the International Monetary Fund – must approve the reforms proposed by Greece on Monday. “The Greek authorities will present a first list of reform measures, based on the current arrangement, by the end of Monday, February 23,” the statement said. “The institutions will provide a first view whether this is sufficiently comprehensive to be a valid starting point for a successful conclusion of the review. This list will be further specified and then agreed with the institutions by the end of April.”

Greece has yet to receive €7.2 billion in bailout installments that the previous government failed to secure. But the country’s creditors will only disburse these funds once the implementation of the measures has taken place by the end of April. “Only approval of the conclusion of the review of the extended arrangement by the institutions in turn will allow for any disbursement of the outstanding tranche of the current EFSF program and the transfer of the 2014 SMP profits,“ said the statement. Greek Finance Minister Yanis Varoufakis stressed the importance of Greece being able to submit its own reforms and vowed to “work night and day between now and Monday” to produce a “fresh list of reforms.”

“The Greek authorities have expressed their strong commitment to a broader and deeper structural reform process aimed at durably improving growth and employment prospects, ensuring stability and resilience of the financial sector and enhancing social fairness,” said the Eurogroup statement. “The authorities commit to implementing long overdue reforms to tackle corruption and tax evasion, and improving the efficiency of the public sector. In this context, the Greek authorities undertake to make best use of the continued provision of technical assistance.” In the meantime, though, some €11 billion left in Greece’s bank recapitalization fund, the HFSF, will return to the European Financial Stability Facility (EFSF) but will be available for use should banks require it.

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“..to sell and lend to the countries on the periphery of Europe was always Germany’s preferred economic activity..”

The Euro’s Up In Smoke (Beppe Grillo)

“The Eurozone chess game has entered its third and final stage. Germany wins in three moves – Euro, deflation and purchase of public debt by the ECB (QE) – and in the last few years it has found a way to maximise its profits and reduce to zero its risks as Europe’s creditor.

Germany’s risks Let’s try analysing the problems of the Eurozone as they really are: problems of conflicting interests of creditors and debtors regulated by demand and supply. If you agree to make a loan to your neighbour, you open yourself up to three risks:
• that he’ll pay you back in a different currency that has perhaps been devalued unless you had a prior agreement about the repayment currency (currency risk);
• that with the amount you get back, you can buy fewer goods or property (inflation risk);
• that you don’t even have either of the first two problems because your neighbour simply goes bust and thus you lose everything (capital risk).

How Germany gains Germany is the Eurozone’s only big creditor with about €600 billion loaned to various countries, most of which are on the periphery of the Eurozone, including Italy. The Euro has given it this enviable status. If you produce lots and you consume and invest very little and you keep domestic wages and prices low, then you’ll always have cheap unconsumed goods to sell to your neighbours. And you might also be able to make money by providing credit that they will probably ask you for so that they can buy your goods that are so cheap and so good. This is Germany’s situation. It has always had this approach to the market economy in European affairs ever since 1870 with its roots in Calvinism. Thus to sell and lend to the countries on the periphery of Europe was always Germany’s preferred economic activity when everything was going well, before the crisis in 2008. Since then its only objective has been to get that credit returned and to protect its purchasing power.

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“We are going to write our own script on the reforms that need to be enacted..”

Eurozone Chiefs Strike Deal To Extend Greek Bailout For Four Months (Guardian)

Greece has stepped back from the prospect of a disorderly eurozone exit after reaching a last-ditch deal to resolve the impasse over its €240bn bailout. The outline agreement between Athens and its creditors in the single currency bloc to extend Greece’s rescue loans should help ease concerns that it was heading for the exit door from the euro. In return, the country’s leftwing government has pledged not to roll back austerity measures attached to the rescue, and must submit, before the end of Monday, a list of reforms that it plans to make. The chairman of the eurozone finance chiefs’ group, Jeroen Dijsselbloem, said Athens had given its “unequivocal commitment to honour their financial obligations” to creditors.

He said that the agreement was a “first step in this process of rebuilding trust” between Greece and its eurozone partners which would provide a strategy to get the country back on track. A senior Greek government official welcomed the agreement, saying it gave Athens time to negotiate a new deal. “Greece has turned a page,” the official added. Greece’s finance minister, Yanis Varoufakis, claimed victory, insisting there was “no substantive difference” between the deal and a Greek compromise text that had been dismissed by Germany’s finance ministry as a Trojan horse for Athens to throw off austerity. “We are going to write our own script on the reforms that need to be enacted,” he said

But the Greek prime minister, Alexis Tsipras, will almost certainly face fierce reaction over the deal, both from hardliners in his radical left Syriza party and from the populist right-wing Anel – his junior partner in the governing coalition – for agreeing to continue with austerity measures as part of the deal, given that he was elected on an anti-austerity programme. “Very heavy concessions have been made, politically poisonous concessions for the government,” Pavlos Tzimas, the veteran political commentator, told SKAI news.

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“The Greek authorities commit to refrain from any rollback of measures and unilateral changes to the policies and structural reforms that would negatively impact fiscal targets, economic recovery or financial stability, as assessed by the institutions.”

Greece Bends To Eurozone Will To Find Short-term Agreement (Open Europe)

Immediately after SYRIZA’s election victory in Greece, we predicted that:” While a compromise could still be possible, it will be quite painful to reach and will imply someone taking big steps back from their previous stance.” Tonight that looks to have been proven true – at least in the short term.

What does this agreement do and why? Tonight’s deal extends the current Master Financial Assistance Facility Agreement (MFAFA) by four months in order to allow Greece to fund itself in the short term and to allow time for negotiations over what happens afterwards.+ The purpose of the extension is the successful completion of the review on the basis of the conditions in the current arrangement, making best use of the given flexibility which will be considered jointly with the Greek authorities and the institutions (European Commission, ECB and IMF – formerly known as ‘the Troika’).+ Tonight’s agreement seems to essentially extend the existing agreement and the tied-in conditionality of the current Memorandum of Understanding.

What points has Greece capitulated on? Completion of the current review – Greece has basically agreed to conclude the current bailout. Any funding is conditional on such a process: “Only approval of the conclusion of the review of the extended arrangement by the institutions in turn will allow for any disbursement of the outstanding tranche of the current EFSF programme and the transfer of the 2014 SMP profits. Both are again subject to approval by the Eurogroup.” This is a clear capitulation for Greek Prime Minister Alexis Tsipras, who said the previous bailout was “dead” and the EU/IMF/ECB Troika is “over”.

Remaining bank recapitalisation funds – Greece wanted this money to be held by the Hellenic Financial Stabilisation Fund (HFSF) over the extension period, and possibly be open for use outside the banking sector. However, this has been denied and the bonds will return to the EFSF, although they will remain available for any bank recapitalisation needs. Role of the IMF – The Eurogroup statement says, “We also agreed that the IMF would continue to play its role”. Again, Greece has given in on this point and the Troika continues to exist and be strongly involved in all but name.

No unilateral action – According to the statement, “The Greek authorities commit to refrain from any rollback of measures and unilateral changes to the policies and structural reforms that would negatively impact fiscal targets, economic recovery or financial stability, as assessed by the institutions.” In light of this, a large number of promises that SYRIZA made in its election campaign will now be hard to fulfil. In the press conference given by Eurogroup Chairman Jeroen Dijsselbloem and EU Economics Commissioner Pierre Moscovici, it was suggested that this pledge also applied to the measures which were announced by Tsipras in his speech to the Greek parliament earlier this week – when he announced plans to roll back some labour market reforms passed by the previous Greek government.

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“You’ll get to go through it again in four months..”

Greece’s Debt Deal Isn’t The End Of Eurozone Drama (MarketWatch)

Rejoicing over the tentative resolution of the latest round of eurozone debt drama? Good for you. You’ll get to go through it again in four months. That is assuming Greece’s weekend exercise in picking its own austerity poison somehow proves mortifying enough to appease the “institutions” (don’t call them the troika anymore) overseeing the country’s bailouts while not enraging Greek voters who elected the new government on the promise it would stop Berlin and Brussels from imposing unrelenting austerity. That could prove to be a tall order. Failure on the latter front could mean new elections. Greek voters in January supported Greek Prime Minister Alexis Tsipras and his Syriza party on the idea that Greece didn’t want to leave the euro, but could no longer abide harsh austerity measures dictated by the dreaded troika..

Greek Finance Minister Yannis Varoufakis says Greece won a victory in that it will now be a “co-author” of its reforms, rather than having measures imposed by fiat by its creditors. Meanwhile, German Finance Minister Wolfgang Schaeuble was attempting to soothe German taxpayers. He emphasized to reporters that Athens won’t see any aid until it completes a satisfactory proposal, Reuters reported. And perhaps just to rub it in a little, he offered that the Greeks “certainly will have a difficult time to explain the deal to their voters, “ the report said. If Greek voters feel they got a raw deal, another election could be in the offing. If so, it would likely turn not on the question of austerity, but on a so-called Grexit.

So now Greece must submit a list of reforms to the institutions by the end of the day Monday. The institutions will review pore over it. There is scope for the process to break down between now and then. Varoufakis said Athens will craft its proposals in consultation with its partners, albeit at “arms length.” But even if everything goes smoothly, the question of what happens next for Greece, which will likely require a third bailout, will need to be answered in four months time.

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“If we were to sell bonds, we would make huge capital gains, but we will then have to reinvest that money at a yield of 0.5%, set against liabilities at 3.50-3.75 (percent),”

ECB’s Draghi Wants To Buy Bonds, But Who Will Sell? (Reuters)

At the height of the euro zone debt crisis in 2012, ECB President Mario Draghi’s problem was how to convince investors to hold on to European bonds. Now he faces a struggle to make them sell. Weeks before the European Central Bank begins a program to buy about 1 trillion euros of euro zone government bonds, banks, pension funds and insurers across the continent are hoarding them for regulatory or accounting reasons. That may complicate implementation of the quantitative easing program, aimed at reviving growth and inflation in the euro zone. The ECB might have to pay way above market prices, or take additional measures to encourage investors to sell. “We prefer to hold on to them,” said Antoine Lissowski at French insurer CNP Assurances. “The ECB’s policy … is reaching its limits now.”

Banks, which buy mainly short-term bonds, use government debt as a liquidity buffer. Selling would force them to invest in other assets, for which – unlike government bonds – regulators ask banks to set cash aside as a precaution. Alternatively, they can deposit money with the ECB, at a discouraging interest rate of minus 0.20%. Insurers and pension funds typically buy long-term debt. They could make hefty profits selling to the ECB. But the money would have to be re-invested in other bonds whose yields would be much lower than their long-term commitments to clients – a regulatory no-no. In 2012, many euro zone bonds offered double-digit yields. Today, Greece aside, the bloc’s highest yielding debt is a 30-year Portuguese bond offering 3.30%.

Between a quarter and a third of the market carries negative yields, meaning investors pay governments to park their money in debt. In Belgium, a country whose rates are taken as indicative of the euro zone average, benchmark 10-year bonds BE10YT=TWEB yield 0.7%, just above record lows around 0.5%. “If we were to sell bonds, we would make huge capital gains, but we will then have to reinvest that money at a yield of 0.5%, set against liabilities at 3.50-3.75 (percent),” said Bart de Smet, the CEO of Belgian insurer Ageas. Dutch banks ING and Rabobank, Spain’s Bankinter and rescued lender Bankia and France’s BNP Paribas said they were unlikely to sell when the ECB comes knocking. “The volume of sovereign bonds we own at the moment is not linked to monetary policy,” BNP Paribas deputy CEO Philippe Bordenave said. “It’s linked to the regulation.”

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“It is hard to imagine how Ireland, Portugal, Spain or even Italy could have stayed in the euro area in 2011-2012 had there been a worked-out exit route.”

It’s Up To Germany To End The Game Of Chicken With Greece (Guardian)

At the heart of the rift that runs through Europe at the moment lies a technocratic debate drowned in emotion. Germany has rejected Greece’s bailout request on the basis of the semantic difference between a programme extension (acceptable) and a loan extension (unacceptable). True, words are substance. But when the German finance minister, Wolfgang Schäuble, or his allies take the floor to explain their critical stance, the underlying reasons become evident: they quickly shift to moral and emotional grounds, invoking trust, values and cultural differences. The Greek side of the debate is not better. Opening the negotiations with a ridiculous request for war reparations, tolerating for several days caricatures of Schäuble as a Nazi in government-friendly newspapers, and comparing Eurogroup methods with waterboarding, the new Greek government went for a strategy of emotional alienation, rather than trust-building.

In a game of chicken, stubbornness leads to catastrophe. And stubbornness based on pride and prejudice is hard to abandon. This is why I have started to get seriously worried about where these negotiations are heading. We urgently need to bring back in some simple economic and political considerations to show that a compromise is not only a good solution; it’s the only solution. First, we need to make it absolutely clear that Grexit would be devastating for Greece, for Europe and for Germany. For Greece, because it would cause the banking system to collapse, import prices to skyrocket and growth prospects to disappear for several years, with horrifying prospects for the Greek population. For Europe because the euro area would be turned from an “irrevocable” currency union into some kind of fixed-exchange rate regime where countries can leave as soon as they come under market pressure.

It is hard to imagine how Ireland, Portugal, Spain or even Italy could have stayed in the euro area in 2011-2012 had there been a worked-out exit route. Finally, it would be devastating for Germany, not only because it would lose billions of euros from a Greek devaluation but even more so because it would put at risk Germany’s recent prosperity: a currency union is to the benefit of the largest export nation in Europe. Secondly, we need to remember that some of the Greek requests are economically reasonable. The country urgently needs to shift from a contractionary to a more neutral fiscal stance. Structural reforms were necessary but put additional pressure on domestic demand. The bailout money hasn’t benefitted the Greek population, but in its largest parts has gone straight from European bank accounts, through Athens, and back to the ECB or the IMF.

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“These are uncharted waters and founding fathers never envisaged or made provision for a nation leaving the euro.”

Is Greek PM Alexis Tsipras Going To Be Russia’s ‘Trojan Donkey’? (NewsCorp)

As newly elected Greek leader Alexis Tsipras earlier this month made a much heralded visit to mainland Europe to shore up support to end austerity measures in his country, he made a largely unreported transit stop in Cyprus. The stopover lasted only a few hours but in that time he received first-hand briefings of not only the dire financial precipice upon which the island also stood but equally the potentially huge oil and gas reserves waiting to be explored off its turquoise coastline. Symbolically the Leftist prime minister met not only with Greek Cyprus counterparts but also leading members of the Turkish Cypriot community, to declare his desire for reunification of the island, split in two between Greece and Turkey for more than 40 years but now largely divided over rights to those offshore hydrocarbon reserves.

Turk Cypriots applauded the significant move. It was the first time a Greek leader had visited the island and met them but for eurozone leaders the trip bore two other less obvious outcomes — Greece was prepared to break from tradition in a bid to find friends in the face of its financial crisis and more crucially was perhaps seeking those friendships to forge new ties with others like Russia. And there lies the issue at hand this week. Greece’s almost inevitable exit from the EU has less to do with its own economic predicament and the effect its collapse or exit or both would have on the broader 19 nation euro-using money markets, but its where and to whom it would then turn in a post Europe landscape.

There are other issues too including if Greece did finally leave the bloc, where would it leave the likes of Spain, Ireland and Portugal that all have upcoming national elections with governments wading through their respective austerity quagmires against huge domestic oppositions. It is conceivable they too may like or be forced to abandon their multi-billion dollar loans. Greece had a $270 billion bailout in 2010 and 2012 that it has sought to renegotiate to remove pegging the payback to austerity measures. The current bailout expires on February 28 hence the urgency to find a solution now. These are uncharted waters and founding fathers never envisaged or made provision for a nation leaving the euro.

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Nobody has a clue. They’re just pretending.

Has Greece’s ‘Lehman Moment’ Finally Arrived? (CNBC)

A key week for Greece’s economic future drew to a close on Friday with the country facing the very real threat that it’s running out of money and key analysts warming to the idea that it could be on its way out of the euro zone. Euro zone finance ministers are set to meet Friday to discuss Greece’s latest proposals to extend its loan agreement. But with Germany already rejecting the plan, there is very little hope that an agreement will be announced. Another meeting in Brussels for next week was already being touted before Friday’s meeting even began. The main problem for the fiscally disciplined countries like Germany is that, despite the ground Greece has given up in the last week, it is still asking for the bailout loan without all of the strict austerity conditions that come with the money.

Greek economist Elena Panaritis, former member of the Greek Parliament and the World Bank, drew comparisons with the collapse of the Lehman Brothers in 2008. As with the fall of the big U.S. bank, market-watchers feel euro zone policymakers want to show the world they will only be pushed so far — with the result being Greece would be allowed to exit the euro zone. Panaritis thought there was a “political statement as well as economic statement” being made during the negotiations. Randy Kroszner, a former U.S. Federal Reserve governor and the professor of economics at the University of Chicago Booth School of Business, agreed that there were comparisons between the two events.

“I think there a parallel, but the tools exist if the European Union wants to keep Greece in and if Greece is willing to stay in,” he told CNBC Friday. “Even though it may be quite ugly, the likelihood of complete chaos is much lower. So that gives policymakers more willingness to say ‘Hey, we’ll take that risk’.”

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Damning.

Expectations And Reality: What Maidan Gave Ukraine’s Economy (RT)

The major expectation of the Maidan protest a year ago was replacing the burden of corruption and mismanagement of the economy with the benefits of EU integration. The reality brought collapse and a debt trap. The protests that ousted President Viktor Yanukovich in February 2014 started after his government postponed the signing of a key EU integration treaty. The EU Association Agreement opens the Ukrainian market to European goods and required that its industries adopt European standards. Both would take a heavy toll on the already ailing economy due to the cost of modernization and the loss of Russian markets. Moscow also warned it would protect its home market from European goods by revoking the tax-free trade deal with Ukraine.

Critics of Yanukovich, most notably Arseny Yatsenyuk, then-leader of a major opposition party, dismissed such concerns. Speaking on political talk shows and from the Maidan stage, Yatsenyuk gave vivid descriptions of how Prime Minister Nikolay Azarov was hurting Ukraine with his policies and how he would do a better job. He promised visa-free travel to Europe for Ukrainian tourists and guest workers, rising wages and social benefits, reining in national debt, lowering utility prices, bringing in billions of dollars of foreign investments, and many other things. Azarov went with Yanukovich and was replaced with Yatsenyuk, but the reality under the new cabinet is nothing like the picture presented a year ago. The Ukrainian economy experienced a deep plunge in 2014.

Its GDP dropped 6.5% last year, according to IMF figures, the only two countries worse were South Sudan and Libya. The unemployment rate reached 9.3% in the third quarter of 2014, as compared to 7.7% in 2013. The figure is expected to rise sharply in 2015. Ukrainian job search websites report a 30 to 50% drop in the number of employment offers over a year. “The country is at war that they cannot afford to fight. There is no economy any longer. When you look at where the industrial base of Ukraine is and the conflict going on in the east there is absolutely no doubt as to why it is happening,” Gerald Celente told RT. “That $160 billion loss of trade with Russia has destroyed the economy when it was already in a severe recession. It went from very bad to worse than depression levels.”

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“Both Deutsche Bank and Santander passed ECB stress tests in October.”

US Units of Deutsche Bank, Santander Likely to Fail Fed Stress Test (WSJ)

Large European banks including Deutsche Bank and Banco Santander are likely to fail the U.S. Federal Reserve’s stress test over shortcomings in how they measure and predict potential losses and risks, according to people familiar with the matter. The expected rebuke would mark the second year large foreign banks, which were drawn into the Fed’s stress test regime in 2014, failed to meet the U.S. regulator’s expectations for risk management. As banks have bulked up their capital cushions to ensure they can withstand losses in periods of turmoil, the Fed has increasingly focused on more “qualitative” issues in its stress tests, including whether banks accurately measure potential losses in credit portfolios, collect risk exposure data accurately and have strong internal controls.

Failing the stress tests would likely subject the U.S. units of Deutsche Bank and Banco Santander to restrictions on paying dividends to their European parent companies or other shareholders. Santander is already under such a restriction after failing its first stress test run last year. Deutsche Bank is undergoing the U.S. stress test process for the first time this year. Both Deutsche Bank and Santander passed ECB stress tests in October. Those tests focused on whether the banks had enough capital to withstand a two-year recession but didn’t assess such things as governance, risk management, and other more subjective factors like the Fed’s test.

The Fed’s Board of Governors in Washington will disclose partial results of the test on March 5 and full results on March 11, including any capital restrictions. Last year, the board met just ahead of releasing the results to vote on whether banks should fail the tests for “qualitative” reasons. It ultimately rejected Citigroup Inc. as well as U.S. units of Santander, HSBC and RBS on such grounds. It cited the foreign banks for “significant deficiencies” in their capital planning process. It hasn’t disclosed such a board meeting yet this year. The Fed declined to comment on specific banks.

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Who wants a US passport these days?

The US Government’s Stupid Tax War On Expatriates (MarketWatch)

The U.S. government’s stupid, hateful and dishonest war on Americans living abroad claimed its latest scalp this week. London Mayor Boris Johnson, a dual British and American national, says he will join the growing lines of Americans overseas who are now being driven to renounce their U.S. citizenship by the federal government for no good reason. Johnson, a possible future British prime minister, was born to British parents in New York. His case is not important individually, but it is illustrative. A record number of Americans abroad renounced their citizenship last year, and the numbers are escalating fast. That’s in response to a growing set of U.S. financial laws that make it nearly impossible for them to keep two passports. Most people don’t understand the government’s war on U.S. expats and dual nationals, so they buy the official spin that it is just “cracking down” on “rich tax cheats.”

It is doing no such thing, and it knows that it is doing no such thing. Indeed some of its most onerous financial rules, while “cracking down” on overseas grandmas with a $30,000 retirement account, specifically and deliberately exempt billionaires with money in hedge funds and private-equity funds. Even National Taxpayer Advocate Nina Olson has pointed out in her official reports to Congress that the war on expats often punishes ordinary middle-class and even poor Americans abroad far more severely than it does the rich. Olson is appointed to her role by the Congress, but she says that when she called up the Treasury to discuss some of the problems, they didn’t bother to respond. Talk to the hand, honey. Oh, and doesn’t it say a bundle that while the U.S. Treasury was “cracking down” on Grandma Moses, it was waiving all penalties on U.S. Treasury Secretary Tim Geithner for failing to pay tens of thousands of dollars in taxes?

What is going on? To put a complicated issue in a nutshell, the federal government is currently ramping up a wide set of bizarre and impossible regulations on all Americans living abroad — and threatening them with the financial equivalent of the death penalty if they don’t comply. As an American expat, you can be arrested, thrown in jail and bankrupted by Uncle Sam for failing to disclose a $15,000 checking account on which you have paid all the taxes owed. You are liable to double taxation, required to spend thousands of dollars a year on professional advice simply to survive — oh yes, and you are effectively barred from investing in either U.S. or non-U.S. based mutual funds. Ha ha! You lose!

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That’s a whole extra full size guy…

NYC Could See 6-Foot Sea Rise By 2100 (NewsMaine)

A new study, published by the New York Panel on Climate Change, has revealed that many regions of New York could be under water by 2100 if the sea level continues to rise due to global warming. The researchers have predicted that the city could experience sea level rise as much as 6 feet in the future. They said that in the next 40 years, the sea level could reach 11 to 12 inches and have demonstrated that New York City’s Central Park’s mean annual precipitation has increased at a rate of approximately 0.8 inches in every 10 years over 1900 to 2013. This has raised the mean annual precipitation to 8 inches over this past decade. During this time period, Central Park has shown an increase in mean annual temperature at a rate of 0.3°F per decade. The researchers have said that this trend has varied ‘considerably’ over shorter periods of time.

The data has suggested that both the precipitation and the New York City’s temperature have shown an increase. It has further disclosed that NYC will face heat waves at a rate 3 times as much as the city does now by the 2080s, decreasing the’ extreme cold events’.The study has called the sea level rise in New York City as a significant hazard and the main risk will be on the ‘coastal communities, infrastructure, and ecosystems’. The new climate change report given by New York City Panel on Climate Change (NPCC) has revealed that New York City might be looking at high sea level rise in the future. According to NBC, the 2015 report has found that the flood damage in the future might exceed that of Hurricane Sandy. In a press release, NYC Mayor Bill de Blasio said, “NPCC’s findings underscore the urgency of not only mitigating our contributions to climate change, but adapting our city to its risks”.

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Feb 162015
 
 February 16, 2015  Posted by at 8:46 pm Finance Tagged with: , , , , , , ,  10 Responses »


John M. Fox WCBS studios, 49 East 52nd Street, NYC 1948

It’s really not that hard. It’s even elegantly simple. But that still requires you’re willing to listen, willing to think, and you don’t go into talks with your mind already made up. Obviously, that is too much to ask from the Eurogroup side of the negotiations with Greece. They haven’t been able to move one inch from their ‘Do as we say or else’ bluster.

German Fin Min Schäuble earlier implied that the Greek people have elected the ‘wrong’ government, an already unforgivable intrusion into a EU member state’s internal affairs. What if the Greeks said the same about Merkel et al, what do you think the reaction would be? Today, SPD executive board member, Joachim Poß, member of Merkel’s German coalition government, does Schäuble one better:

“In the interest of the Greek people and in view of the difficult situation, Prime Minister Tsipras should consider to replace Mr Varoufakis with a political experienced, realistic-efficient person.”

They call for the Greeks to see reality, but they themselves have completely lost it. They think reality is whatever they think or wish it is. The only true reality, however, is that the Greek people, in a very democratic and very convincing way, have elected the government that a cackle of Germans now apparently find inconvenient.

Germany has European reality, and history, and economics, fully upside down. Which, no matter how you take the Greek claim that Germany got in 1953 what Greece deserves today, or their insistence on WWII reparations, is remarkable. How is it possible that there is no voice coming from Berlin to question, doubt, attack, their government’s position? It’s after all not as if there are no unresolved issues left. There are no clear cut positions other than what Berlin and Brussels say there are.

Merkel and Dijsselbloem and Draghi don’t get to decide for the entire world what goes and what does not. Their ‘model’, their ideas, have failed dramatically, and Dijsselbloem’s hollow statement that “much progress has been made” (talking about Greece) only serves to confirm that. They seem to think that a double or nothing on Greece will hide their failures, but the exact opposite is true: Syriza is exposing them as unsavory naked emperors.

Schäuble, in the same vein as Dijsselbloem, insists on saying: “look how great we’ve been doing, which is why we have the right to keep on acting the way we have”. But that is nonsense, neither Schäuble nor Draghi’s policies have been a huge success, far from it. And while Germany may have scraped by – and not much more than that -, this is not remotely true for some of the countries both gentlemen are in an economic union with, least of all Greece. It is simply not true, it’s a self absorbed and self aggrandizing delusion.

If New York State, Texas and California were not bound by the policies inherent in a federal fiscal union, they would have been even richer than they are, but Oklahoma and Nebraska (I’m just picking a few examples) would have been much poorer, and would have no reason to remain part of the USA. The EU and eurozone have no such fiscal union, which means Germany gets to keep all the spoil, and Greece pays the bill. This is possible because Greece, unlike Oklahoma, only gets hand-outs that it has to pay back with interest. Which may be low right now, but that doesn’t change the principle – or the principal, for that matter: Greece gets it share of ‘help’ of the union it’s in, in the form of additional debt. Oklahoma does not.

While at the same time, Greece no longer has a central bank or a currency, so it’s fully dependent on what Berlin decides Frankfurt (ECB) must do. And wouldn’t you know, Frankfurt always decides on doing what is best for Berlin, because it’s the major power in the union. That leaves Greece in a deep dark hole, and one that can only possibly get deeper and darker, unless the eurozone economy starts growing at double digit rates (not!). And even then. Even then that – fantasy – growth would be primarily German.

Just like Nebraska will never be New York or California, Greece will never be Germany. In the US, this was understood – luckily – at an early stage. Or there wouldn’t be a US. I’m not saying the present day US is some sort of Nirvana, but at least it got its basic fiscal principles down early in the game. There’s a means for the federal government to lift up the poorer parts of the union using tax revenues from the richer. And no, that’s not socialism, it’s the only way to keep the better part of an entire continent tied together. And when I say ‘better’, please note I’ve already in my young life lived in Canada for 20 years. And left. And that Canada is actually bigger than the US. It’s a figure of speech.

Schäuble pretends that what is good for Germany, is also good for Greece. And that is manifestly untrue. It would be in a true fiscal union, but it is not true today. It’s nonsense. Doesn’t Germany understand this? That’s hard to believe. Still, they insist that the only way forward for Europe is the one that benefits themselves most. And they get the likes of Dijsselbloem and Draghi to confirm that for them.

All against the Greek underdog. Which, as democratically as their ancestors invented it eons ago, voted they had had enough. And what is Germany’ s reaction? Schäuble said: “The problem is that Greece has lived beyond its means for a long time..” But isn’t that perhaps even more true for Germany itself? It depends on how you look at it.

Greece never stood a chance in the present configuration. All benefits would always have gone to Germany, simply because they get to decide everything. There are no EU or eurozone rules that say Berlin has to bequeath part of its surplus to weaker parts of the union. What inevitably follows from that is that Germany will, as time goes by, squeeze Greece and Italy and Spain ever drier. After all, Berlin is not the Salvation Army, right?! These things should have been written down in very strong terms long ago, like they were in the US. If you don’t do that, there’s no escaping the consequences.

What Greece, Syriza, Tsipras and Varoufakis are doing right now is to try and change this arrangement, which benefits only the richer parts of the European Union, and does so on an inevitably ever larger scale. They’re trying to make the EU perhaps not precisely like the US (Zeus forbid!), but certainly more like it.

In the US there’s at least a basic kind of fairness, which – well, mostly – prevents parts of its union to dissolve into Third World status. Europe has no such fairness, and it therefore does indeed create that sort of misery within its own borders. And instead of saying, ‘okay, perhaps we should have shared a bit more of our wealth, and let’s discuss that’, they dig in and they treat the Greeks like they’re some kind of inferior species whose best option is to wait for some scraps to fall off the beer and beerwurst-laden tables of Bavaria.

And lest we forget it, one more time, and Varoufakis repeated it again last week, the majority of the Greek debt is what Germany and France burdened the country with when they decided to bail out their own banks who has wagered huge amounts of ‘money’, encouraged by Goldman Sachs’ derivatives schemes that hid Athens debts and allowed Greece entry into the eurozone to begin with.

But for Schäuble to state that “Greece has lived beyond its means for a long time” is a huge leap away from that, because those people lining up at the soup kitchens, and those who sleep in the streets, and those who’re dying from ailments that a 100 miles from the Greek border don’t even faze anyone, have obviously not lives beyond their means.

The Greek people haven’t “lived beyond their means for a long time”, or they wouldn’t live in their “hideous humanitarian crisis”, as Varoufakis calls it, to begin with. The Greek elite may have made off like bandits, but not the people. And who did the EU, Schäuble, Dijsselbloem and Draghi, make the deals with that got the situation where it is?

That’s right, the elites. Brussels installed the technocrat Samaras government, and they did it for a reason. And now that whole set-up has been defeated. Which is why Schäuble says things like “the new Greek government [is] behaving “quite irresponsibly”, and it’s all their fault and none of it is his.

Hubris, bluster, and not much else. That’s how Europe enters the negotiations with Greece. So why should Varoufakis be replaced? I can think of a few others who should first. The entire Greek debt story is nothing but a narrative that will only hold until it no longer can. Thing is, by then the entire eurozone may be gone. And whether you think that’s a good idea or not, just make sure you understand that it will happen only because a bunch of stuck-up politicians too full of themselves to see their own blubber want it to.

Not because of Greece or Syriza. They just want to stop their people’s misery. And what does Germany have to say about that? Well, as per Herr Schäuble, that the Greek government is behaving “quite irresponsibly”.

Upside down, topsy turvy, Bizarro. And that’s what Tsipras and Varoufakis must face. l can only hope they have more patience with it than I would.