Jul 152017
 
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Hieronymus Bosch The Conjurer 1502

 

Big Banks Continue Winning Streak, With Street at Least (BBG)
‘It’s Almost An Embarrassment Being An American’ – Jamie Dimon (G.)
US House Backs Massive Increase In Defense Spending (R.)
US Deficits To Jump $248 Billion Over Next Two Years Due To Tax Shortfall (R.)
We Do These Things Because They’re Easy (CHS)
The New Silk Road Will Go Through Syria (Escobar)
One Of Worst Droughts In Decades Devastates South Europe Crops (R.)
People Not Amused by EU Efforts to “De-Cash” their Lives (DQ)
Just 13% of Greeks Trust Their Government (K.)
World’s Large Carnivores Being Pushed Off The Map (BBC)

 

 

What happens when markets don’t function. Manipulation is the name of the game.

Big Banks Continue Winning Streak, With Street at Least (BBG)

U.S. bank earnings have kicked off without any tumult. Investors should be grateful for that increasing sense of dependability, though they appear to be looking for more. JPMorgan Chase, Wells Fargo, Citigroup and PNC Financial Services each delivered second-quarter results on Friday that topped Wall Street’s expectations. On a measure of earnings per share, each bank has improved its respective streaks of beating or meeting analysts’ estimates:Reliability Factor The U.S. banks that reported earnings on Friday lengthened their streak of surpassing or matching expectations which, to be fair, are managed by bank executives:

The business of fixed-income trading, which has been a bright spot over the past year, has received outsize attention as it has fallen from grace after a long stretch of low volatility and tepid volumes, as expected. Instead, its quarterly gyrations should be accepted by shareholders just as they withstand changes in the weather, according to JPMorgan’s chairman and CEO Jamie Dimon. He has a point – the diversity of JPMorgan combined with the size of its overall corporate and investment bank, which houses the fixed-income trading business, gives the bank a level of flexibility. That defense might not stick if JPMorgan’s other businesses weren’t performing, but they are. The bank posted quarterly net income of $7 billion in the three months ended June 30.

That was its biggest haul ever, driven in part by a significant jump in net interest income, a direct result of the Federal Reserve’s rate increases. Its efforts to bulk up asset and wealth management, where revenues have roughly doubled since 2006, have borne fruit. Net income for the business climbed 20% compared with results in the same period last year to a record $624 million. And for now, despite broad concerns about auto and credit card loans, there’s no need to worry about widespread cracks. The bank’s so-called net charge-off rate, which measures delinquencies, remains minimal. [..] Bank stocks have rallied in part because the expected growth in their respective earnings per share, or EPS, in 2018 far exceeds that of the benchmark index:

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Because you get to make record profits while others only get deeper into debt? Is that what Dimon is talking about?

‘It’s Almost An Embarrassment Being An American’ – Jamie Dimon (G.)

JP Morgan just had the most profitable 12 months ever for a US bank – but it wasn’t enough for Jamie Dimon, the bank’s boss. “It’s almost an embarrassment being an American traveling around the world and listening to the stupid shit Americans have to deal with in this country,” Dimon told journalists after the bank released its latest quarterly results on Friday. The world’s largest bank reported a profit of $7.03bn for the second quarter, 13% higher than last year. It has made $26.5bn over the past 12 months, a record profit for a US bank. But Dimon, who last year turned down Donald Trump’s offer to become treasury secretary, seemed more concerned about low rates of growth in the US and the health of the American body politic.

He blamed bad policy for “holding back and hurting the average American” and financial journalists for concentrating on the bank’s trading results when they should be focusing on policy. “Who cares about fixed-income trading in the last two weeks of June? I mean, seriously,” Dimon said after a reporter asked about the health of the bonds markets. “That is the weather,” he said of changes in the markets. “It goes up and down, this and that, and that’s 80% of what you guys focus on.” Dimon said financial journalists would be better off concentrating on the “bad policies” that are hurting average Americans. “It’s almost an embarrassment being an American traveling around the world and listening to the stupid shit Americans have to deal with,” he said. “At one point, we would have to get our act together, do what we’re supposed to do to the average American.”

[..] “We need infrastructure reform,” he said. “We need corporate tax reform. We need better skills and education. If we don’t focus on these things, we are hurting average Americans every day. “The USA has to start to focus on policy which is good for all Americans, and that is regulation, tax, education, we have to get those things done. You guys [journalists] should be writing a lot more about that stuff. That is holding it back and hurting the average American citizen if we don’t do it.

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Or is Dimon embarrassed over this?

US House Backs Massive Increase In Defense Spending (R.)

The U.S. House of Representatives passed its version of a massive annual defense bill on Friday, leaving out controversial amendments on transgender troops and climate policy but backing President Donald Trump’s desire for a bigger, stronger military. The vote was 344-81 to pass the National Defense Authorization Act (NDAA), which sets military policy and authorizes up to $696 billion in spending for the Department of Defense. Underscoring bipartisan support for higher defense spending in Congress, 117 Democrats joined 227 Republicans in backing the measure. Only eight Republicans and 73 Democrats voted no. But the measure faces more hurdles before it can become law, notably because it would increase military spending beyond last year’s $619 billion bill, defying “sequestration” caps on government spending set in the 2011 Budget Control Act.

Trump wants to pay for a military spending increase by slashing nondefense spending. His fellow Republicans control majorities in both the House and Senate, but they will need support from Senate Democrats, who want to increase military spending, for Trump’s plans to go into effect. The House NDAA also increases spending on missile defense by 25%, adds thousands more active-duty troops to the Army, provides five new ships for the Navy and provides a 2.4% salary increase for U.S. troops, their largest pay raise in eight years. And it creates a new Space Corps military service, pushed by lawmakers worried about China and Russia’s activities in space, but opposed by Defense Secretary Jim Mattis.

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Oh well, money’s cheap after all.

US Deficits To Jump $248 Billion Over Next Two Years Due To Tax Shortfall (R.)

The budget deficit for President Donald Trump’s first two years in office will be nearly $250 billion higher than initially estimated due to a shortfall in tax collections and a mistake in projecting military healthcare costs, budget chief Mick Mulvaney reported on Friday. In a mid-year update to Congress, Mulvaney, director of the Office of Management and Budget, revised the estimates supplied in late May when the Trump administration submitted its first spending plan. Since then, Mulvaney said, the deficit projected for the current fiscal year has increased by $99 billion, or 16.4%, to $702 billion. For 2018, the deficit will be $149 billion more than first expected, increasing by 33% to $589 billion.

The figures come as the administration is facing widespread doubts among economists and analysts that it can erase government deficits largely by boosting economic growth and changing laws like the Affordable Care Act. ACA reform is facing a difficult path in Congress, and the Congressional Budget Office on Thursday said the administration’s growth and deficit reduction plans were optimistic. The letter from Mulvaney said the bulk of the problem this year and next stems from lower-than-expected tax collections. Individual and corporate income taxes and other collections for this year are expected to be $116 billion less than the administration anticipated in May. Tax receipts in 2018 are expected to be $140 billion less than initially estimated.

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A reference to JFK. Our next discovery will be that debt is a harsh mistress.

We Do These Things Because They’re Easy (CHS)

We are now totally, completely dependent on expanding debt for the maintenance of our society and economy. Every sector of the economy–households, businesses and government–all borrow vast sums just to maintain the status quo for another year. Compare buying a new car with easy, low-interest credit and saving up to buy the car with cash. How easy is it to borrow $23,000 for a new $24,000 car? You go to the dealership, announce all you have to put down is a trade-in vehicle worth $1,000. The salesperson puts a mirror under your nose to make sure you’re alive, makes sure you haven’t just declared bankruptcy to stiff previous lenders, and if you pass those two tests, you qualify for a 1% rate auto loan. You sign some papers and drive off in your new car. Easy-peasy!

Scrimping and saving to pay for the new car with cash is hard. You have to save $1,000 each and every month for two years to save up the $24,000, and the only way to do that is make some extra income by working longer hours, and sacrificing numerous pleasures–being a shopaholic, going out to eat frequently, $5 coffee drinks, jetting somewhere for a long weekend, etc. The sacrifice and discipline required are hard. What’s the pay-off in avoiding debt? Not much–after all, the new auto loan payment is modest. If we take a 5-year or 7-year loan, it’s even less. By borrowing $23,000, we get to keep all our fun treats and spending pleasures, and we get the new car, too. At the corporate level, it’s the same story: borrow a billion dollars and use it to buy back shares.

Increasing the value of the corporation’s shares by increasing profit margins and actual value is hard; boosting the share price with borrowed money is easy. It’s also the same story with politicians and the government: cutting anything is politically painful, so let’s just float a bond, i.e. borrow money to pay for what was once paid out of tax revenues: maintaining parks, repaving streets, funding pensions, etc. This dependence on expanding debt for maintaining the status quo is a global trend. Debt is exploding in China in every sector, and the same is true in other nations, developed and developing alike. Borrowing more money from the future is easy, painless and requires no trade-offs, sacrifices or accountability–until the debt-addicted economy collapses under its own weight of debt service and insolvency.

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“..all those elaborate plans depend on no more war. And there’s the rub.”

The New Silk Road Will Go Through Syria (Escobar)

Amid the proverbial doom and gloom pervading all things Syria, the slings and arrows of outrageous fortune sometimes yield, well, good fortune. Take what happened this past Sunday in Beijing. The China-Arab Exchange Association and the Syrian Embassy organized a Syria Day Expo crammed with hundreds of Chinese specialists in infrastructure investment. It was a sort of mini-gathering of the Asia Infrastructure Investment Bank (AIIB), billed as “The First Project Matchmaking Fair for Syria Reconstruction”. And there will be serious follow-ups: a Syria Reconstruction Expo; the 59th Damascus International Fair next month, where around 30 Arab and foreign nations will be represented; and the China-Arab States Expo in Yinchuan, Ningxia Hui province, in September.

Qin Yong, deputy chairman of the China-Arab Exchange Association, announced that Beijing plans to invest $2 billion in an industrial park in Syria for 150 Chinese companies. Nothing would make more sense. Before the tragic Syrian proxy war, Syrian merchants were already incredibly active in the small-goods Silk Road between Yiwu and the Levant. The Chinese don’t forget that Syria controlled overland access to both Europe and Africa in ancient Silk Road times when, after the desert crossing via Palmyra, goods reached the Mediterranean on their way to Rome. After the demise of Palmyra, a secondary road followed the Euphrates upstream and then through Aleppo and Antioch. Beijing always plans years ahead. And the government in Damascus is implicated at the highest levels.

So, it’s not an accident that Syrian Ambassador to China Imad Moustapha had to come up with the clincher: China, Russia and Iran will have priority over anyone else for all infrastructure investment and reconstruction projects when the war is over. The New Silk Roads, or One Belt, One Road Initiative (Obor), will inevitably feature a Syrian hub – complete with the requisite legal support for Chinese companies involved in investment, construction and banking via a special commission created by the Syrian embassy, the China-Arab Exchange Association and the Beijing-based Shijing law firm. Few remember that before the war China had already invested tens of billions of US dollars in Syria’s oil and gas industry. Naturally the priority for Damascus, once the war is over, will be massive reconstruction of widely destroyed infrastructure.

China could be part of that via the AIIB. Then comes investment in agriculture, industry and connectivity – transportation corridors in the Levant and connecting Syria to Iraq and Iran (other two Obor hubs). What matters most of all is that Beijing has already taken the crucial step of being directly involved in the final settlement of the Syrian war – geopolitically and geo-economically. Beijing has had a special representative for Syria since last year – and has already been providing humanitarian aid. Needless to add, all those elaborate plans depend on no more war. And there’s the rub.

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Southern Europe: getting poorer and hotter.

One Of Worst Droughts In Decades Devastates South Europe Crops (R.)

Italian durum wheat and dairy farmer Attilio Tocchi saw warning signs during the winter of the dramatic drought to come at his holding a mile away from the Tuscan coast. “When it still hadn’t rained at the beginning of spring we realized it was already irreparable,” he said, adding that he had installed fans to try and cool his cows that were suffering in the heat. Drought in southern Europe threatens to reduce cereal production in Italy and parts of Spain to its lowest level in at least 20 years, and hit other regional crops including olives and almonds. Castile and Leon, the largest cereal growing region in Spain, has been particularly badly affected, with crop losses estimated at around 60 to 70%.

“This year was not bad, it was catastrophic. I can’t remember a year like this since 1992 when I was a little child,” said Joaquin Antonio Pino, a cereal farmer in Sinlabajos, Avila. Pino said many of his fields had not even been harvested, because crop revenues would not cover the wages of laborers who gathered them. While the EU is collectively a major wheat exporter, Spain and Italy both rely on imports from countries including France, Britain and Ukraine. Spanish soft wheat imports are expected to rise by more than 40% to 5.6 million tonnes in the 2017-2018 marketing year, according to Agroinfomarket. The drought has helped support EU wheat futures, which have risen around 6% since the beginning of June, although the prospect of a larger harvest in France this year should ensure adequate overall supplies in the trading bloc.

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Germans love cash.

People Not Amused by EU Efforts to “De-Cash” their Lives (DQ)

In January 2017 the European Commission announced it was exploring the option of imposing upper limits on cash payments, with a view to implementing cross-regional measures as soon as 2018. To give the proposal a veneer of respectability and accountability the Commission launched a public consultation on the issue. Now, the answers are in, but they are not what the Commission was expecting. A staggering 95% of the respondents said they were opposed to a cash ceiling at EU level. Even more emphatic was the answer to the following question: “How would the introduction of restrictions on payments in cash at EU level benefit you, or your business or your organisation (multiple replies are possible)?” In the curious absence of an explicit “not at all” option, 99.18% chose to respond with “no answer.”

In other words, less than 1% of the more than 30,000 people consulted could think of a single benefit of the EU unleashing cross-regional cash limits. Granted, 37% of respondents were from Germany and 19% from Austria (56% in total), two countries that have a die-hard love for physical lucre. Even among millennials in Germany, two-thirds say they prefer paying in cash to electronic means, a much higher level than in almost any other advanced economy with the exception of Japan. Another 35% of the survey respondents were from France, a country that is not quite so enamored with cash and whose government has already imposed a maximum cash limit of €1,000. By its very nature the survey almost certainly attracted a disproportionate number of arch-defenders of physical cash.

As such, the responses it elicited are unlikely to be a perfect representation of how all Europeans would feel about the EU’s plans to introduce maximum cash limits. Nonetheless, the sheer strength of opposition should (but probably won’t) give the apparatchiks in Brussels pause for thought. The biggest cited concern for respondents was the threat the cash restrictions would pose to privacy and personal anonymity. A total of 87% of respondents viewed paying with cash as an essential personal freedom. The European Commission would beg to differ. In the small print accompanying the draft legislation it launched in January, it pointed out that privacy and anonymity do not constitute “fundamental” human rights.

Be that as it may, many Europeans still clearly have a soft spot for physical money. If the EU authorities push too hard, too fast in their war on cash, they could provoke a popular backlash. In Germany, trust in Europe’s financial institutions is already at a historic low, with only one in three Germans saying they have confidence in the ECB. The longer QE lasts, the more the number shrinks.

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When they were elected in January 2015, Syriza’s approval rating was some 75%. But when you turn your back on your promises, and then unleash more austerity….

Just 13% of Greeks Trust Their Government (K.)

Just 13% of Greeks trusted the government in 2016, according to the Organization for Economic Cooperation and Development’s (OECD) biennial Government at a Glance report, placing Greece among the four member states with the sharpest decline in confidence in their administrations. According to the report, which was published by the Paris-based organization on Thursday and shows 2016 data, Greece joins Chile, Finland and Slovenia in recording a significant loss of trust between citizens and the government, slipping to 13% in 2016 from 19% in 2014. Confidence has also declined over the past decade across the OECD’s member states, though at a rate of 3%, coming to 42% in 2016 from 45% in 2007.

In terms of specific sectors, Greeks have lost faith across the board, with the Greek health system having the trust of just 31% of citizens from 35% in the 2015 study for 2014, public education of 44% from 45% and the judicial system of 42% from 44%. A new area added in this year’s survey is the police, where confidence was high last year at 69%. Across the OECD, average confidence in the health system came to 70%, education to 67% and justice to 55%.

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You’d almost wish they would fight back.

World’s Large Carnivores Being Pushed Off The Map (BBC)

Six of the world’s large carnivores have lost more than 90% of their historic range, according to a study. The Ethiopian wolf, red wolf, tiger, lion, African wild dog and cheetah have all been squeezed out as land is lost to human settlements and farming. Reintroduction of carnivores into areas where they once roamed is vital in conservation, say scientists. This relies on human willingness to share the landscape with the likes of the wolf. The research, published in Royal Society Open Science, was carried out by Christopher Wolf and William Ripple of Oregon State University. They mapped the current range of 25 large carnivores using International Union for Conservation of Nature (IUCN) Red List data. This was compared with historic maps from 500 years ago.

The work shows that large carnivore range contractions are a global issue, said Christopher Wolf. “Of the 25 large carnivores that we studied, 60% (15 species) have lost more than half of their historic ranges,” he explained. “This means that scientifically sound reintroductions of large carnivores into areas where they have been lost is vital both to conserve the large carnivores and to promote their important ecological effects. “This is very dependent on increasing human tolerance of large carnivores – a key predictor of reintroduction success.” The researchers say re-wilding programmes will be most successful in regions with low human population density, little livestock, and limited agriculture. Additionally, regions with large networks of protected areas and favourable human attitudes toward carnivores are better suited for such schemes.

“Increasing human tolerance of large carnivores may be the best way to save these species from extinction,” said co-researcher William Ripple. “Also, more large protected areas are urgently needed for large carnivore conservation.” When policy is favourable, carnivores may naturally return to parts of their historic ranges. This has begun to happen in parts of Europe with brown bears, lynx, and grey wolves. The Eurasian lynx and grey wolf are among the carnivores that have the smallest range contractions. The dingo and several types of hyena are also doing relatively well, compared with the lion and tiger.

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Aug 212015
 
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Lewis Wickes Hine Newsies in St. Louis, N. Broadway and De Soto 1910

Greek PM Alexis Tsipras Steps Down To Trigger New Elections (Guardian)
Syriza Rebels Break Away To Form New Party ‘Leiki Anotita’ -Popular Unity- (BBC)
The Colony Of Italy (M5S Lower House)
Asia Stocks Tumble as China PMI Hits Six-Year Low; Shanghai -4.27% (Bloomberg)
Global Stocks In ‘Panic Mode’ As China Factory Slump Drags On Markets (Guardian)
Commodity Rout Erases $2 Trillion From Stock Values (Bloomberg)
Stock Market Correction: Is This A New Global Financial Crisis? (Guardian)
The Asian Century Hits a Speed Bump (Bloomberg)
China Wants Great Power, Not Great Responsibility (Pesek)
Can Kickers United – Why It’s Getting Downright Hazardous Out There (Stockman)
The Baby Boom Will Never Retire (MyBudget360)
Draghi’s Post-Holiday Inbox Stuffed With Trouble (Bloomberg)
How Long Can Saudi Arabia Hold Out Against Cheap Oil? (Bloomberg)
UK New Home Builds Fall 14% In Three Months Despite Election Pledge (PA)
Brazil’s Unemployment Rate Hits Five-Year High in July (WSJ)
World Breaks New Heat Records In July (AFP)
The Unique Ecology Of Human Predators (Phys Org)
Macedonia Police Use Tear Gas Against Migrants (BBC)

Democracy in progress.

Greek PM Alexis Tsipras Steps Down To Trigger New Elections (Guardian)

Seven months after he was elected on a promise to overturn austerity, the Greek prime minister, Alexis Tsipras, has announced that he is stepping down to pave the way for snap elections next month. As the debt-crippled country received the first tranche of a punishing new €86bn bailout, Tsipras said on Thursday he felt “a moral obligation to place this deal in front of the people, to allow them to judge … both what I have achieved, and my mistakes”. The 41-year-old Greek leader is still popular with voters for having at least tried to stand up to the country’s creditors, and his leftwing Syriza party is likely to be returned to power in the imminent general election, which government officials told Greek media was most likely to take place on 20 September.

The prime minister insisted in an address on public television that he was proud of his time in office and had got “a good deal for the country”, despite bringing it “close to the edge”. He added that he was “shortly going to submit my resignation, and the resignation of my government, to the president”. The prime minister will be replaced for the duration of the short campaign by the president of Greece’s supreme court, Vassiliki Thanou-Christophilou – a vocal bailout opponent – as head of a caretaker government. Tsipras won parliamentary backing for the tough bailout programme last week by a comfortable margin, but suffered a major rebellion among members of his ruling Syriza party, nearly one-third of whose 149 MPs either voted against the deal or abstained.

The revolt by hardliners, angry at what they view as a betrayal of the party’s anti-austerity pledges, left Tsipras short of the 120 votes he would need – two-fifths of the 300-seat assembly – to survive a censure motion, leading to speculation that he would call an early confidence vote. He has now decided to skip that step, opting instead to go straight to the country in an attempt to silence the rebels and shore up public support for the three-year bailout programme, which entails a radical overhaul of the Greek economy and major reforms of health, welfare, pensions and taxation.

Government sources had long suggested that an announcement on early elections was on the cards as soon as Athens had got the first instalment of the new package – Greece’s third in five years – and completed a critical €3.4bn debt repayment to the European Central Bank, due on Thursday. Some analysts had speculated that the prime minister might wait until early October, by which time Greece’s creditors would have carried out their first review of the country’s reform progress and perhaps come to a decision about debt relief – a potential vote-winner for the prime minister.

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Is Tsipras wise enough to use this to his full advantage?

Syriza Rebels Break Away To Form New Party ‘Leiki Anotita’ -Popular Unity- (BBC)

Rebels from Greece’s main party, left-wing Syriza, are to break away and form a new party, Greek media reports say. Prime minister and Syriza leader Alexis Tsipras stood down on Thursday, paving the way for new elections. The move came after he lost the support of many of his own MPs in a vote on the country’s new bailout with European creditors earlier this month. Greek media reports say 25 rebel Syriza MPs will join the new party, called Leiki Anotita (Popular Unity). The party will be led by former energy minister Panagiotis Lafazanis, who was strongly opposed to the bailout deal, reports say. A list of MPs joining the party published by the Ta Nea newspaper showed that the parliamentary speaker Zoe Konstantopulou and former finance minister Yanis Varoufakis were not among its members. Both had opposed a new bailout deal, with Ms Konstantopulou highly critical of her former ally Mr Tsipras.

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From Beppe Grillo’s parliamentarians. Dead on. “The 5 Star MoVement wants to show Europe what it means to have people in government who are free to make decisions.”

The Colony Of Italy (M5S Lower House)

“From Crete to Santorini, from Mykonos to Thessaloniki – it’s official: 14 of the Greek airports making the most money, will be handed over to Germany until 2055. Before now, things were conquered with wars. Now it’s done with the Euro. In Italy, companies called Lamborghini, Ducati, Italcementi and other giants have been in German hands for more than a year. Parmalat, Galbani, Eridania, Bulgari, Gucci, Buitoni, Sanpellegrino, Perugina, and Motta have landed up in French hands. Between 2008 and 2013, 437 of the most famous Italian brands have ended up in foreign hands. They’ve converted us into an outlet, where they come “shopping” from all over the world and the government doesn’t even notice. Recently, English and South Africans have bought Peroni beer and Gancia sparkling wine.

And that’s not considering Ansaldo that’s gone to the Japanese, Terna and Pirelli to the Chinese, and the Valentino brand to the Arabs. And how much longer before the Colosseum gets purchased? Greece was first strangled by the conditions to get their budget balanced for the Euro, those same constraints that Germany and France allowed themselves not to respect on so many occasions. Now that the country is totally dependent on the transfer of funds from the European Central Bank and the International Monetary Fund, they are being obliged to give up the family jewels in exchange for a bit of small change. In these new wars of conquest, Germany and France are acting like their masters.

In Greece, they are buying up the services that make the most money: last year Greece had a record number of 23 million tourists and it’s obvious that the airports are a gold-mine. This is why they want them. And in exchange the banks can open their doors. In Italy, on the other hand, they have bought up the “Made in Italy” companies, with a quasi-military strategy. First, the governments led by the PD, Forza Italia and Lega, strangled them by increasing taxes, because “it’s what Europe asked us to do”. Then, that same “Europe” (in actual fact the Franco-German alliance) bought them up from owners who found their backs to the wall. A bit like what happens in war-time when cities are razed to the ground and then the reconstruction business starts.

Europe needs to experience once more the joy of having sovereign states, states that don’t accept being bought out while saying “thank you”. If you want to give us the possibility of governing, our idea of Italy is clear: we want to bring back home many of the excellent companies that are Made in Italy. We could do this by using the Italian Strategic Fund of the Cassa Depositi e Prestiti that will be able to buy them. By buying back these “family jewels” we are creating an opportunity to relaunch top quality employment in Italy. Profits from “Made in Italy” will stay in Italy and will make Italy rich. We must also have discussions about thie “Euro” that cannot be a weapon used to colonise other States. The 5 Star MoVement wants to show Europe what it means to have people in government who are free to make decisions.”

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Getting serious.

Asia Stocks Tumble as China PMI Hits Six-Year Low; Shanghai -4.27% (Bloomberg)

Asian stocks tumbled with U.S. index futures, oil and emerging currencies as a gauge of Chinese manufacturing plunged to the lowest since 2009, underscoring the weakness in global demand. Gold and the yen extended gains. Benchmark gauges in Hong Kong, Taiwan and Indonesia headed for bear markets, dragging down the MSCI Asia Pacific Index by 2.4% at 2:34 p.m. in Tokyo. Standard & Poor’s 500 Index futures dropped 0.5% after the gauge fell the most in 18 months. Gold is set for its biggest weekly advance since January as the selloff in emerging markets spreads. U.S. oil headed for an eighth straight weekly slide, its longest streak since 1986. “We’ve been expecting a correction and it looks like we’re getting one,” said Mark Lister at Craigs Investment Partners.

“The S&P had held up, now it’s back in negative territory. The whole world’s looking a little bit sad. China still looks really worrying on a number of fronts.” China’s decision to devalue its currency amid slowing growth and the prospect of higher U.S. interest rates has spurred a wave of selling across emerging markets and commodities. The first read on Chinese economic activity in August added to concern that the slowdown in global growth is deepening, boosting the appeal of haven assets such as gold, the yen and sovereign bonds. The MSCI Asia Pacific Index is heading for its biggest weekly loss since 2011. Japan’s Topix index slid the most since July 8 on Friday and the Kospi gauge in Seoul set for its worst week since May 2012. The MSCI All-Country World Index has lost 3.1% this week.

Hong Kong’s Hang Seng Index dropped 2.3%, taking declines since an April high beyond 20%. Taiwan’s benchmark gauge dropped 2.7% to finish in a bear market and the Jakarta Composite Index slid 2.1%. The Shanghai Composite Index slumped 3%, taking the week’s loss beyond 10%. The gauge briefly erased all its gains since the government began efforts to prop up the market in July. About $2.2 trillion was wiped from the value of global stocks in the first four days of the week. The S&P 500 slipped out of the 70-point trading range it has been stuck in since March, falling below 2,040 to as low as 2,035.73 on Thursday. It closed below its 200-day moving average for the first time since July 9.

The Federal Reserve will decide whether to raise interest rates for the first time since 2006 on Sept. 18. Bets on liftoff taking place next month have been wound back since the last meeting as oil slumped, China cut the value of its currency and the Fed’s own minutes showed concern among policymakers about the pace of inflation. The decision is “only four weeks away and the world’s looking pretty vulnerable,” said Stephen Halmarick at Colonial First State Investment. “If they delay you might see some support coming through to U.S. markets because then the dollar probably comes down a bit from where it is now and some of those pressure points may be relieved, at least in the short term.”

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Everyone’s sinking now.

Global Stocks In ‘Panic Mode’ As China Factory Slump Drags On Markets (Guardian)

Stock markets across Asia-Pacific went into “panic mode” on Friday after more signs of a weakening Chinese economy compounded overnight losses on Wall Street and European bourses. China’s factory sector shrank at its fastest pace in more than six years in August as domestic and export demand dwindled, a private survey showed, adding to worries that the world’s second-largest economy may be slowing sharply and sending financial markets into a tailspin. China’s surprise devaluation of the yuan and heavy selling in its stock markets in recent weeks have sparked fears that it could be at risk of a hard landing which would hammer world growth. Markets in countries whose economic fortunes are closely linked to China’s growth tumbled.

Japan’s Nikkei average dropped more than 2% to six-week lows on Friday while the Kopsi index in South Korea fell 2.25%. Shares in Australia are having their worst month since the global financial crisis hit in October 2008. On Friday afternoon the benchmark ASX200 was down 2.2% at 5,173 points and is down 8.8% so far in August, according to broker Commsec. The Australian dollar was also hammered, falling 0.5% to as low as US72.85c. The Aussie, which is seen as a proxy for the Chinese economy, has fallen about 1% in the past week. The Hang Seng stock index in Hong Kong was down 2.32% while the Shanghai Composite index was 3% lower.

Commodities also suffered. US crude hit fresh six and a half year lows near $40 a barrel as it headed for its eighth straight weekly decline, the longest weekly losing streak since 1986. Brent crude for October delivery was down 29c at $46.33. “Global markets are in panic mode as the full scale of China’s slowdown becomes clearer,” said Angus Nicholson at IG Markets in Sydney. The long-awaited interest rate rise by the US federal reserve, pencilled in for as early as September by many analysts, was now looking much less likely, Nicholson added. “The potential for further devaluations in the Chinese yuan not only make a US rate hike in September unlikely, but increasingly even put a December rate hike at risk.”

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Deflation in action.

Commodity Rout Erases $2 Trillion From Stock Values (Bloomberg)

The value that commodity producers have lost in the past year almost equals India’s entire economy. Slumping prices for raw materials have wiped out $2.05 trillion from the shares of mining and oil companies since the middle of last year, data compiled by Bloomberg show. That compares with India’s $2.07 trillion gross domestic product. Prices plunged after years of overinvestment led to a supply glut at the same time that economic growth is slowing in China, the biggest consumer of commodities. The Bloomberg Commodity Index of 22 raw materials dropped Wednesday to its lowest since 2002, paced this year by declines in nickel, sugar, and crude oil.

Oil companies have reduced spending by $180 billion this year while maintaining dividends, according to Rystad Energy, an Oslo-based energy consultant. As a prolonged decline lowers revenue, it may be harder for the industry to avoid slashing payments. “The energy is the worst, the materials, industrials have been a disaster,” says Donald Selkin at National Securities Corp. in New York. “The problem is their ability to pay dividends. That’s the question, as far as the valuation is concerned.” Another blow has come from a stronger dollar. Currencies of commodity producers in such countries as Canada and Russia are slumping, lowering production costs. That’s helped boost Russian oil supply to a post-Soviet high this year, adding to the global glut.

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Is this a question?

Stock Market Correction: Is This A New Global Financial Crisis? (Guardian)

The jitters in the City have nothing to do with the state of the UK economy and nothing to do with the speculation that Greece might eventually be forced out of the single currency. They have everything to do with concerns that the next global financial crisis has begun in emerging markets. As ever, the riposte to this suggestion is “it’s different this time”, with good reason considered the four most dangerous words in financial markets. Panglossian investors can always think up a hundred reasons why it’s different this time, up to the moment when reality smacks them in the face.

The optimists argue that China is adroitly easing its way to slower but more sustainable growth, that the fall in commodity prices has been caused by over-supply rather than a shortage of demand, and that the rest of the world has had plenty of opportunity to prepare itself for an increase in interest rates from the Federal Reserve later this year. The pessimists would say that China’s hard landing is being disguised by dodgy official figures, that oil and metals prices are falling because demand is faltering and that the $1tn of capital that has flowed out of emerging markets in the past year is evidence of a sharp drop in investor confidence.

As Russell Jones and Bimal Dharmasena of Llewellyn Consulting note: “The export-led model has run its course. In many ways, it sowed the seeds of its own destruction, the emphasis on exchange rate competitiveness and foreign exchange reserve accumulation morphing into undue monetary laxity, excessive credit growth, asset price inflation, income inequalities, and malign financial imbalances similar to those built up in the advanced economies pre-2007.” Many emerging market countries assumed that high commodity prices would last for ever. They spent up to their income, and then some. They now have a twin deficit problem: they are running budget and current account deficits. Capital flowed into emerging markets when zero interest rates in the west set off a search for higher yield in markets that were seen as a bit riskier but still safe. Now those markets are seen as not nearly so safe as they were and a lot riskier than the west.

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“Beijing will have to choose between propping up the equity market and defending the currency from further downside pressure: “They will not be able to do both.”

The Asian Century Hits a Speed Bump (Bloomberg)

Trade slowing, currencies weakening, stocks falling, economic growth waning and political wobbles emerging. 2015 is proving a bumpy year in what’s meant to be the Asian century. The confluence of stresses – from China’s slowdown, the fallout from the yuan’s devaluation, doubts over Abenomics, disappointment with Modi and Jokowi, and deepening vulnerabilities among smaller economies – comes as the Federal Reserve contemplates raising interest rates for the first time in almost a decade. Weakening currencies can help boost export competitiveness, but also raise the cost of servicing U.S. dollar debt. And when devaluations start spreading, there are fears of a new currency war.

Bank of America Merrill Lynch economists say they’re concerned about the competitive impact on the rest of Asia from a weaker yuan, as China’s market share of exports to the U.S. and the EU was growing even before the devaluation. Demand for Asian-made goods was already stumbling amid uneven recoveries in the U.S. and Europe before the yuan devaluation. Now, “northeast Asia will likely face greater competitive pressures from China’s devaluation given stronger trade linkages and overlapping exports,” BofA economists say. Asian stocks have reflected the worsening outlook. China has seen the wildest ride, with a first-half surge reversing course since June. While China’s FX hoard is the envy of the world, even it isn’t bottomless. Analysts at BMI Research say Beijing will have to choose between propping up the equity market and defending the currency from further downside pressure: “They will not be able to do both.”

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Re: Nicole’s eroding Trust Horizon: “China is facing an “erosion in trust in government (stock bubble, Tianjin blast, etc.)” both at home and abroad.”

By the way, Brussels wants the same as Beijing: no responsibility.

China Wants Great Power, Not Great Responsibility (Pesek)

Forty-three years after Richard Nixon made his famous visit to China, that country has seemingly decided to take a page from the former U.S. president’s Treasury Department. As China lowers the value of the yuan, the country’s economic policy makers are mimicking the blasé attitude of Nixon-era Treasury chief John Connally, who dismissed international complaints about U.S. monetary policy with a curt remark: “It’s our currency, but it’s your problem.” To be fair, Japan has acted with similar self-interest since late 2012, when its 35% devaluation began. But that raises a prickly question: What options do Asia’s smaller economies have when the region’s two biggest seem intent on passing their own vulnerabilities onto everyone else?

China will be watching closely for the region’s response, for economic as well as political reasons. Beijing’s designs for regional leadership have always depended on winning the loyalty of its neighbors in order to reduce America’s financial, diplomatic and military role in Asia. Vietnam has already initiated a devaluation of its own, lowering the value of the dong by 1% on Wednesday in order to keep pace with China. Less clear are the potential responses of South Korea, Indonesia or the Philippines. China claims it’s just doing what the IMF asked in moving to a more market-determined exchange rate. But markets have taken so badly to China’s 3% devaluation because no one really believes President Xi Jinping’s government when it says bigger drops aren’t coming.

Take yesterday’s Bloomberg News report that China’s wealthiest investors have been the quickest to bail out of plunging stocks. China would surely deny Communist Party cronies are getting tipoffs on when it’s best to sell, but investors would be forgiven if they felt skeptical. The government’s obsessive efforts to censor deadly explosions at a toxic-material warehouse in Tianjin have only fed suspicions that Xi’s team is obfuscating on economic matters, too. As Patrick Chovanec of Silvercrest Asset Management told me in a Twitter exchange, China is facing an “erosion in trust in government (stock bubble, Tianjin blast, etc.)” both at home and abroad.

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Another strong outing by Stockman

Can Kickers United – Why It’s Getting Downright Hazardous Out There (Stockman)

It’s getting downright hazardous out there, and not just because the robo-machines were slamming the “sell” key today. The real danger comes from the loose assemblage of official institutions which claim to be running the world. They might better be referred to as “can kickers united.” It is now blindingly obvious that they have lapsed into empty ritualism, contrivance and double-talk in the face of a global economy and financial system that is becoming more unstable and incendiary by the day. Who in their right mind would pile $95 billion of new debt on the busted remnants of Greece? Likewise, how can Japan possibly consider enacting still another round of fiscal stimulus, as did Prime Minister Abe’s chief advisor recently, when it already has one quadrillion yen of debt?

And what geniuses are trying to fix the bankrupt finances of China’s local governments by swapping trillions of crushing bank loans for equivalent mountains of new municipal bonds? But it is on the home front where kicking the can has been taken to an egregious extreme. By what rational calculus can it be said, as the Fed did in its meeting minutes today, that 80 months of free money has not quite yet done the job? And that is exactly what these mountebanks had to say:

“The Committee concluded that, although it had seen further progress, the economic conditions warranting an increase in the target range for the federal funds rate had not yet been met. Members generally agreed that additional information on the outlook would be necessary before deciding to implement an increase in the target range.”

Say again! We are now 74 months into a so-called “recovery” cycle that is well longer than the post-war average, yet the Fed is still manning the emergency fire hoses.

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Full liquidation.

The Baby Boom Will Never Retire (MyBudget360)

Some of you might remember the glossy highly produced advertisements back in the early 1980s when Wall Street decided it was time to turn American retirement plans into casinos. The slow and agonizing death of the pension plan was supposed to be replaced by the beautiful and wonderful world of the 401(k) plan. Save for 30 years and in the end, you will be a millionaire just like your friends on Wall Street that sincerely care about your financial future. Of course since then, we have found out about junk bond scandals, mutual fund fees that make loan sharks look conservative, and of course the financial shenanigans of giving people toxic mortgages that were essentially ticking time bombs of destruction. This was the industry that was put in charge of helping you plan for your future. We are now a generation out from those slick ads and the results have been disastrous for most Americans.

A recent analysis found that half of US households 55 and older have no money stashed away for retirement. Planning for retirement takes time. Saving money is a slow process. There was a time when simply stashing money into CDs and savings bonds was enough to have a nice nest egg if you were diligent enough. Yet for the last decade, most banks are paying close to 0% on their savings accounts thanks to the Fed’s low rate policy to juice the markets. Since the true inflation rate is much higher, you are essentially letting your money rot away. So the only other option is for people to invest in the stock market or try to leverage into real estate. The stock market is largely an arena for the wealthy. Half of Americans own no stocks at all. Now after a generation, we are finding out that most people did not follow in the footsteps of those glossy over produced retirement ads.

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Much of it is of his own making.

Draghi’s Post-Holiday Inbox Stuffed With Trouble (Bloomberg)

The euro area’s monetary-policy makers aren’t getting to slumber through the dog days of August. Even with talks over Greece’s third bailout wrapped up, European Central Bank officials are having their repose disturbed by developments that could jolt their plan to revive the region’s economy. In coming weeks, they’ll have to deal with a world in which China has devalued its currency, oil has slumped to almost $40 a barrel, and investors in emerging markets are walking wounded. The ECB’s Governing Council meets in Frankfurt on Sept. 3, sandwiched between the U.S. Federal Reserve’s annual policy pow-wow in Jackson Hole, Wyoming, and a gathering of Group of 20 finance ministers and central bankers in Ankara.

As the Fed considers raising its interest rates as soon as next month, ECB President Mario Draghi and his colleagues could find themselves discussing policy action of a very different kind. “The pressure for the ECB to bring forward the discussion about an extension or expansion of its quantitative-easing program beyond summer 2016 has increased significantly,” said Ruben Segura-Cayuela at BofAML. “Deflationary pressures coming from China, emerging markets and the decline of commodities’ prices are making it harder for the ECB to hit its inflation target.” In assessing whether they’ll reach that goal – inflation of just under 2%, compared with 0.2% in July – the ECB is watchful of how investors hedge against prices in the future. Since the end of July, the outlook has worsened.

So-called five-year, five-year forward inflation swaps show that market-based consumer-price expectations slid to about 1.6% this month, almost as low as when QE started in March. The drop in the price of oil, down by a third since June, and cheaper imports into Europe as Asian currencies follow the yuan lower, may compound the problem. Adding to the uncertainty, the Greek government plans to hold an election on Sept. 20, just before the first review of its new bailout program. Stubbornly low inflation in the euro area – as in the U.S. and the U.K. – increases the risk that broad-based price decreases, or deflation, could creep in. It also drags on economic growth, which slowed to a sluggish 0.3% in the 19-nation bloc last quarter. This month’s inflation figures will be published on Aug. 31.

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When will internal trouble start?

How Long Can Saudi Arabia Hold Out Against Cheap Oil? (Bloomberg)

The oil price was near its lowest in more than a decade, cash reserves were being depleted, emerging markets were in turmoil and Saudi Arabia was beginning to panic. “It was a very scary moment,” said Khalid Alsweilem, former head of investment at the Saudi Arabian Monetary Agency, the country’s central bank. “And luckily at that point, oil prices started going up. Not by design, by good luck.” That was 1998, and now Saudi Arabia’s fortunes threaten to turn again. This time, luck might not be enough as the government tries to protect the wealth of a nation whose economy has swelled by five times since then. The bastion of conservative Sunni Islam also is paying for an expanding role in regional conflicts in the face of a resurgent Iran and Islamic State extremists who have bombed Saudi mosques.

Economists are predicting a budget deficit of as much as 20% of GDP and the IMF forecasts a first Saudi current-account deficit in more than a decade. Reserves at the central bank tumbled 10% from a year ago, or by more than $70 billion. As a result, bets on the devaluation of the riyal are surging. The Tadawul All Share Index lost 18% in the past three months and dragged stocks down across the Gulf region. The benchmark’s moving averages made a so-called death cross on Aug. 18, a sign to some investors that more losses are ahead. The Saudis have “played a waiting game,” Robert Burgess at Deutsche Bank said. “The budget for next year is going to be a very important milestone that the markets are going to be focusing on quite intently.”

With oil prices down by more than half over the past 12 months to below $50, Saudi Arabia faces many of the same financial problems it did in 1998. The difference is the sheer cost of maintaining the state as an employment machine and guarantor of the riches that Saudis have become accustomed to since the last squeeze. Subsidized gasoline costs 16 cents per liter and while there’s the religious levy called zakat, there is no personal income tax in the nation of 30 million people. “The Saudi government can’t continue to be the employer of first resort, it can’t continue to drive economic growth through the big infrastructure projects and it can’t keep lavishing on subsidies and social spending,” said Farouk Soussa at Citigroup.

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Can’t keep the Ponzi going without new ‘candidates’.

UK New Home Builds Fall 14% In Three Months Despite Election Pledge (PA)

The number of new homes being started in England fell at its steepest rate for three years in the last quarter, official figures show. The 14% drop in housing starts to 33,280 in the period from April to June is the biggest decline since the first three months of 2012, according to seasonally adjusted government data. Starts are 6% lower year on year. It means the pace of new housebuilding is 32% below the peak level in 2007, but remains nearly double the trough it reached during the financial crisis in 2009. The fall comes after a 29% rise in the first quarter of this year, the biggest increase on records going back to 2006. For the year to June 2015, there was a total of 136,320 starts, down 1% on the year before, according to the figures from the Department for Communities and Local Government.

Housing completions for the quarter were 4% up on the previous period at 35,640, and 22% up year on year. But they remain 26% below their 2007 peak. In the year to June, completions totalled 131,060, a 15% increase on the previous 12-month period. The housing charity Shelter said this was only half the 250,000 needed to deal with the country’s housing shortage. Its chief executive, Campbell Robb, said: “Once again, these figures show that we’re not building anywhere near the number of homes needed each year, leaving millions of ordinary, hardworking people priced out. “And worryingly, despite claims by the government that progress is being made to solve our chronic housing shortage, the number of new homes started has actually decreased.”

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This will get much, much worse.

Brazil’s Unemployment Rate Hits Five-Year High in July (WSJ)

Brazil’s unemployment rate surged to a five-year high last month and came in far above forecasts as the country’s troubled economy likely took a turn for the worse. The jobless rate in six major metropolitan areas jumped to 7.5% in July from 6.9% in June, the Brazilian Institute of Geography and Statistics, or IBGE, said Thursday. Economists polled by the local Agência Estado newswire had forecast a median unemployment rate of 7%. The swift deterioration in Brazil’s job market comes as the nation’s economy is expected to suffer its deepest recession in more than two decades this year, with economists calling for a contraction of more than 2%. Most now expect the decline to continue, albeit at a more moderate pace, through 2016.

Rising unemployment could ramp up the pressure on Brazil’s embattled president, Dilma Rousseff, whose approval ratings have plunged to a record-low 8% just 10 months after she was elected to a second term. Ms. Rousseff’s popularity has been weighed down by the bad economy, rising inflation, and a massive corruption scandal surrounding state-run energy firm Petróleo Brasileiro SA, where she served as chairwoman from 2003 to 2010.

Ms. Rousseff’s administration is struggling to push fiscal austerity measures through an unruly Congress in hopes of clamping down on the government’s swelling budget deficit. At stake is Brazil’s investment-grade credit rating which, if lost, would trigger higher borrowing costs and huge outflows of foreign money from foreign investment funds. Antigovernment lawmakers—and thousands of protesters who took to the streets on Sunday—are even calling for Ms. Rousseff’s impeachment, though legal experts say there appears to be little justification for such a move.

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Past point of no return.

World Breaks New Heat Records In July (AFP)

The world broke new heat records in July, marking the hottest month in history and the warmest first seven months of the year since modern record-keeping began in 1880, US authorities said Thursday. The findings by the National Oceanic and Atmospheric Administration showed a troubling trend, as the planet continues to warm due to the burning of fossil fuels, and scientists expect the scorching temperatures to get worse. “The world is warming. It is continuing to warm. That is being shown time and time again in our data,” said Jake Crouch, physical scientist at NOAA’s National Centers for Environmental Information. “Now that we are fairly certain that 2015 will be the warmest year on record, it is time to start looking at what are the impacts of that? What does that mean for people on the ground?” he told reporters.

The month’s average temperature across land and sea surfaces worldwide was 61.86 Fahrenheit (16.61 Celsius), marking the hottest July ever. The previous record for July was set in 1998. “This was also the all-time highest monthly temperature in the 1880-2015 record,” said NOAA in its monthly climate report. “The first seven months of the year (January-July) were also all-time record warm for the globe,” NOAA said. When scientists looked at temperatures for the year-to-date, they found land and ocean surfaces were 1.53 F (0.85 C) above the 20th century average. “This was the highest for January-July in the 1880-2015 record, surpassing the previous record set in 2010 by 0.16 F (0.09 C).”

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The most deadly and most tragic species.

The Unique Ecology Of Human Predators (Phys Org)

Want to see what science now calls the world’s “super predator”? Look in the mirror. Research published today in the journal Science by a team led by Dr. Chris Darimont, the Hakai-Raincoast professor of geography at the University of Victoria, reveals new insight behind widespread wildlife extinctions, shrinking fish sizes and disruptions to global food chains. “These are extreme outcomes that non-human predators seldom impose,” Darimont’s team writes in the article titled “The Unique Ecology of Human Predators.” “Our wickedly efficient killing technology, global economic systems and resource management that prioritize short-term benefits to humanity have given rise to the human super predator,” says Darimont, also science director for the Raincoast Conservation Foundation.

“Our impacts are as extreme as our behaviour and the planet bears the burden of our predatory dominance.” The team’s global analysis indicates that humans typically exploit adult fish populations at 14 times the rate of marine predators. Humans hunt and kill large land carnivores such as bears, wolves and lions at nine times the rate that these predatory animals kill each other in the wild. Humanity also departs fundamentally from predation in nature by targeting adult quarry. “Whereas predators primarily target the juveniles or ‘reproductive interest’ of populations, humans draw down the ‘reproductive capital’ by exploiting adult prey,” says co-author Dr. Tom Reimchen, biology professor at UVic. Reimchen originally formulated these ideas during long-term research on freshwater fish and their predators at a remote lake on Haida Gwaii, an archipelago on the northern coast of British Columbia.

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This is going to break Brussels.

Macedonia Police Use Tear Gas Against Migrants (BBC)

Macedonia is a key route for migrants trying to reach prosperous northern EU countries (archive picture) Macedonian police have fired tear gas to disperse thousands of migrants trying to enter from Greece. It comes a day after Macedonia declared a state of emergency in two border regions to cope with an influx of migrants, many from the Middle East. Large numbers spent the night stuck on Macedonia’s southern frontier, and tried to charge police in the morning. The Balkan nation has become a major transit point for migrants trying to reach northern EU members. Some 44,000 people have reportedly travelled through Macedonia in the past two months, many of whom are escaping the conflict in Syria.

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Aug 132015
 
 August 13, 2015  Posted by at 10:49 am Finance Tagged with: , , , , , , , , ,  5 Responses »
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DPC Royal Street, New Orleans 1900

China Adds a Chainsaw to Its Juggling Act (Pesek)
China Weakens Yuan For A Third Straight Day On Thursday (CNBC)
Deflation Ice Age Looms After Yuan Move, Albert Edwards Says (Bloomberg)
China’s Currency Devaluation Could Spark ‘Tidal Wave Of Deflation’ (Guardian)
China Could Trigger The Biggest Financial Rout Since 2008 (MarketWatch)
China Intervenes To Support Tumbling Yuan (MarketWatch)
Yuan’s Plunge Marks End of Chinese Stability for Global Economy (Bloomberg)
China Cannot Risk The Global Chaos Of Currency Devaluation (AEP)
Devaluation Hints at China’s Rising Distress Over Economy (NY Times)
Yuan Bear in Wilderness in 2014 Now Warns of China Credit Crisis (Bloomberg)
China’s Slowdown Threatens Euro’s Core More Than Periphery (Reuters)
Greece Is About To Be Dismantled And Fed To Profit-Hungry Corporations (Ind.)
Greek Government Criticizes Rebel Lawmakers Before Bailout Vote (Reuters)
Varoufakis: Greece Bailout Deal ‘Will Not Work’ (AFP)
Varoufakis Exit Marked ‘Sea Change’ In Greek Talks, EU Sources Say (Reuters)
Germany Criticises Greek Bailout Agreement (FT)
There’s A New Twist In The Austrian Bad Bank Saga (Coppola)
Lawrence Lessig Wants To Crowdfund His Way To The Presidency (Forbes)
Canadians Piling Up ‘Good Debt,’ Report Says (Globe and Mail)
Canadian Government Spent Millions On Secret Tar Sands Advocacy (Guardian)
Don’t Freak Out, But Scientists Think Octopuses ‘Might Be Aliens’ (IE)

Headline Of The Day/Week/Month. Hands down.

China Adds a Chainsaw to Its Juggling Act (Pesek)

Chinese President Xi Jinping has just added a chainsaw to what had already been a pretty daunting juggling act. All year he’s been trying to keep aloft two giant economic bubbles – one in debt, one in stocks. This week he added a much more unwieldy prop, the value of the yuan, to the show. As I’ve argued, China is entirely justified in lowering its exchange rate, so far by 2.8%. It’s a risky move, but worth taking if it stabilizes the world’s second-biggest economy and nudges it toward a market-determined financial system – assuming Xi’s team truly knows what it’s doing. The problem for China’s president is this latest challenge threatens his ability to manage the other two. As China guides its currency lower, it heightens default risks on foreign-currency debt and increases the odds of capital flight, which would slam stock prices.

It’s not that China lacks latitude to devalue its currency. Before Tuesday’s 1.9% cut in the central bank’s reference rate, the yuan had risen about 15% on a trade-weighted basis in 12 months. But there are other considerations that should constrain Chinese policy. The Group of Seven nations would throw a fit if China lowered the yuan’s value any further; China could even become a target for candidates in the 2016 U.S. presidential election. That’s why Wednesday’s devaluation by an additional 0.9% raised more questions than it answers. The whole idea of devaluing is to do it all at once: make a huge, one-time step, ride out the turbulence and move on. China, it appears, favors a drip-by-drip approach.

That could dent the market’s confidence in the country’s policy makers. Will investors, analysts, risk managers, executives and journalists feel they can still rely on Chinese pronouncements, or will they have to sit on pins and needles every morning, waiting to see how much the People’s Bank of China lops off the yuan? As Ray Dalio of Bridgewater sees it, Beijing’s “promises to defend it here will need to be kept or it will lead to a loss of credibility – like the implied promise to support the stock market at around 3,500 needs to be defended or it will lead to the appearance that the marketplace is more powerful than the government.” Failure to hold the line, Dalio says, “will add currency volatility to stock market volatility and economic volatility on the government’s list of worries.”

It’s not clear whether Xi’s team understands the trap it’s setting for itself. Beijing is already stuck on what hedge-fund manager Jim Chanos calls a “treadmill to hell” as local governments amass $4 trillion of debt and credit. The Chinese government has also ensnared itself in a dangerous cycle of stock-market interventions that imperil its global clout. Wednesday’s bloodbath in shares of major e-retailer Alibaba demonstrates the worsening state of economic fundamentals.

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One-off cubed.

China Weakens Yuan For A Third Straight Day On Thursday (CNBC)

The People’s Bank of China (PBoC) weakened the yuan against the dollar for a third consecutive day on Thursday, following reports the central bank intervened to stem the currency’s sharp slide late on Wednesday. The PBoC set the yuan fixing at 6.4010, compared to the previous day’s close of 6.3870, sending the currency to 6.40 per dollar in morning trade. Thursday’s fix was 1.1% below Wednesday’s fix of 6.3306, a pause from the aggressive weaker fixings in recent days: On Tuesday the fix weakened 1.9% and then 1.6% on Wednesday. Traders said Thursday’s slower pace of devaluation made sense following reports by the Wall Street Journal that the central bank asked state-owned lenders to sell dollars on its behalf in the last 15 minutes of U.S trading on Wednesday, which caused the yuan to rally 1% against the greenback after falling to fresh four-year lows in intraday trade.

Earlier on Wednesday, the PBoC warned it was not pursuing steady depreciation in response to allegations that Beijing was manipulating the currency to boost exports. The central bank has yet to confirm the supportive action, but it is broadly being treated as fact by market insiders. Wednesday’s intervention signaled the central bank may have gotten cold feet about its commitment to loosen the reins on the exchange rate. Experts say the PBoC acted to prevent the renminbi from falling too rapidly, a consequence that was widely flagged when the PBoC first announced a more market-oriented yuan just 24 hours earlier.

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It will take a long time and huge effort for people to understand what this means.

Deflation Ice Age Looms After Yuan Move, Albert Edwards Says (Bloomberg)

China’s currency devaluation took Albert Edwards a step closer to realizing his doomsday prediction: deflation spreading from Asia to the U.S. and Europe and sending economies crashing. Tumbling emerging-market currencies will now accelerate their declines, curbing import costs in developed nations and triggering a broad drop in prices that will undermine economic growth, according to Edwards, the top-ranked global strategist at Societe Generale. “Make no mistake, this is the start of something big, something ugly,” Edwards wrote in a report on Wednesday. Edwards has long maintained a view he refers to as the Ice Age, when deflation will eventually cover the earth. China’s surprise change to its currency regime this week takes investors one step closer to this outcome, Edwards said.

It will eventually result in an emergency of similar magnitude to the collapse of Lehman Brothers Holdings Inc. in 2008 and the ensuing global financial crisis, he said. “We expect the acceleration of emerging market devaluations to send waves of deflation to the west to overwhelm already struggling corporate profitability and take us back into outright recession,” he wrote. Renowned for his prescient warning in the late 1990s of an impending Asian crisis, he’s also been telling investors to reduce their holdings in equities for almost 20 years. At the end of 2012 he said the New Year would bring nothing but disappointment, just before U.S stocks proceeded to soar 30%. The world’s second-biggest economy shocked markets this week by depreciating its currency by the most in two decades, with the goal of aligning the yuan more closely to the market rate.

China’s decision to make its goods cheaper for the rest of the world to buy also makes it more difficult for wages and consumer prices to increase globally. The yuan fell on Thursday in a third day of losses since Tuesday’s devaluation as the central bank’s reference rate dropped 1.1%. Inflation expectations for the U.S. tumbled this week to the lowest since January. The gap between yields on U.S. five-year notes and similar-dated Treasury Inflation Protected Securities shrank to show traders expect annual consumer-price growth to average 1.27% through 2020. “The key thing here is that Tuesday’s devaluation is not just a one-off –- you will see persistent weakness” from here on, Edwards wrote. “This move will transform perceptions about the resilience of the U.S. economy.”

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I wrote ‘tidal wave’ 36 hours ago for an upcoming artile. Need to find a new metaphor now.

China’s Currency Devaluation Could Spark ‘Tidal Wave Of Deflation’ (Guardian)

“Make no mistake, this is the start of something big, something ugly.” City economist Albert Edwards rarely minces his words, but his reaction to China’s devaluation, which sent shockwaves through global markets, underlined how powerfully Beijing’s move may be felt thousands of miles away. Edwards, of the bank Société Générale, argues that as well as creating a challenge for China’s Asian rivals, by making its exports more competitive, a cheaper yuan will send “a tidal wave of deflation” breaking over the world economy. Central banks in the US and the UK have primed investors for interest rate rises, with the Bank of England Mark Carney pointing to the turn of the year for a move, and Janet Yellen, at the Federal Reserve, signalling that a tightening could start as soon as September.

Edwards argues that instead of pushing up rates, central banks in the west should be preparing themselves to ward off a deflationary slump. In the period running up to the financial crisis of 2008, which became known as the “Great Moderation”, inflation in the west was kept under control by the influx of cheap commodities and consumer goods from China and other low-wage economies. Economies including the UK and the US were able to expand more rapidly than they otherwise might have done, without generating a surge in inflation. But today, with inflation already close to zero – indeed at zero in the UK – China’s decision to devalue could bring a fresh wave of price weakness to the west.

Cheap goods are great news when economic demand is relatively strong; but economists fret about falling prices because entrenched deflation can prompt businesses and consumers to postpone spending – hoping prices have farther to fall – and blunt policymakers’ standard tool of interest rate cuts. Erik Britton, of City consultancy Fathom, said: “We’re all going to feel it: we’ll feel it through commodities; we’ll feel it through manufactured goods exports, not just from China but from everywhere that has to compete with it; and we’ll feel it through wages.”

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Can’t really say China triggers it. It’s just one of many causes, a mere symptom really.

China Could Trigger The Biggest Financial Rout Since 2008 (MarketWatch)

So much for that “one-time correction.” The People’s Bank of China let the yuan drop again overnight, fixing the currency 1.6% below Tuesday’s close, following the 1.9% devaluation heard around the world a day ago. It then had to intervene to keep things from getting out of hand. Cue continued freakout for global markets. Deutsche Bank, for one, is predicting the yuan is overvalued by around 10%, so if the yuan continues to weaken, things could yet get a lot darker for markets. And stocks aren’t dealing well with the new China reality they’ve seen so far. Jani Ziedins of the Cracked Market blog says the U.S. market’s reaction — the S&P 500 fell 1% Tuesday, and futures are pointing sharply lower on Wednesday — looks a bit overdone.

Still, he says, it’s understandable given the reasons behind it — fears of much bigger economic problems in China. Good news? “…if a crumbling Chinese economy cannot bring down this market, then nothing will and all we can do is hang on and enjoy the ride,” he says. Ziedins says watch the next two days to get some insight into the market’s psyche. Either selling is revving up to drop this market to levels not seen in years or this emotional purge will exhaust itself, and a rebound will follow, he predicts. Our chart of the day shows just how long it’s been since the S&P 500 has had a decent correction. But if death crosses and visions of rotting Apples are disturbing your sleep, you aren’t alone.

”The darkest horizon ever approaches, infused with Chinese black coal,” predicts the Fly, blogging for iBank Coin. It’s time to be cautious, he says. If you really want to shiver your timbers, then check out our call of the day. One of the biggest bears out there is riding the China devaluation to the hilt, talking boils and puss and predicting a financial crisis a la 2008. Brr…

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First devalue, then support it. Not terribly reassuring.

China Intervenes To Support Tumbling Yuan (MarketWatch)

China intervened on Wednesday to prop up the yuan in the last minutes of trading, according to people familiar with the matter, in an apparent attempt to prevent an excessive fall in the currency as the authorities seek to give the market more say in setting the exchange rate. The yuan had dropped nearly 2% to its lowest level against the dollar during mainland trading, with one dollar buying about 6.45 yuan, as the People’s Bank of China followed through on its pledge to let market forces play a bigger role in determining the yuan’s value. To that end, the central bank set Wednesday’s reference rate for the yuan based on the currency’s closing level in the previous trading session.

In the past, it had often ignored the daily market moves, at times setting the level–also known as the midpoint, or fixing–so that the yuan was stronger against the dollar even on days after the market indicated it should have been weaker. But the move led to more selling of the yuan, and a statement by the central bank earlier in the day trying to reassuring investors that there was “no economic basis” for continued yuan depreciation largely failed to stabilize the market. The PBOC then instructed state-owned Chinese banks to sell dollars on its behalf in the last 15 minutes of Wednesday’s trading, according to the people. The result: The yuan jumped about 1% in value against the dollar in the final moments of trading, bringing it to a level where one dollar would buy 6.3870 yuan. The Chinese currency is now down 2.8% since Monday’s closing.

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Big important point. China’s the end of the line.

Yuan’s Plunge Marks End of Chinese Stability for Global Economy (Bloomberg)

For about two decades China’s yuan was an anchor of stability for the global economy, helping it navigate Asian and global crises by holding steady even as other currencies slid. That era appears to be over. The yuan fell for a third day as the central bank’s reference rate dropped 1.1%. It recorded its steepest fall in 21 years after the People’s Bank of China said Tuesday it will allow markets a greater role setting its value. Commodities from oil to industrial metals plunged and policy makers around the region weighed responses, with Vietnam widening the trading band for its currency on Wednesday. An extended slide in the value of the yuan risks triggering a series of competitive devaluations and threatens a global deflation shock as prices of exports and commodities fall.

Morgan Stanley said Wednesday that China’s export of deflationary pressures “is not a marginal event” given its $10 trillion economy and a deepening slump in producer prices. “Until Tuesday the two biggest economies in the world – the U.S. and China – had shared the burden of stronger currencies,” said Stephen Jen at hedge fund SLJ Macro Partners. “But we have likely seen China breaking off, leaving the U.S. as the sole economy bearing the burden.” The currency realignment will lower profit margins and exports in the U.S., said Jen. It should also enable China and Asia to export some deflation to the rest of the world, he said. The yuan’s depreciation will lead to a profit and export volume transfer from China’s trading partners into China, wrote Morgan Stanley analysts.

China’s economy needs a competitive devaluation against other Asian producers and that points to weak global growth, lower commodity prices and lower inflation worldwide, according to Bill Gross. In the short term, China’s currency move will amplify challenges to global growth and add volatility to markets that have lost some of their fundamental anchoring, wrote Bloomberg View columnist Mohamed El-Erian. “The Chinese currency has been known for its predictability over the past two decades and now that has gone,” said Tao Dong at Credit Suisse in Hong Kong. “China is the second largest economy, the biggest buyer of commodities and machineries, the anchor for Asian economies.”

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Ambrose’s basic point is China is doing just fine, thank you. But… “China’s fixed investment reached $5 trillion last year, matching the whole of Europe and North America combined.” Thing is, AEP,it was all borrowed.

China Cannot Risk The Global Chaos Of Currency Devaluation (AEP)

If China really is trying to drive down its currency in any meaningful way to gain trade advantage, the world faces an extremely dangerous moment. Such desperate behaviour would send a deflationary shock through a global economy already reeling from near recession earlier this year, and would risk a repeat of East Asia’s currency crisis in 1998 on a larger planetary scale. China’s fixed investment reached $5 trillion last year, matching the whole of Europe and North America combined. This is the root cause of chronic overcapacity worldwide, from shipping, to steel, chemicals and solar panels. A Chinese devaluation would export yet more of this excess supply to the rest of us. It is one thing to do this when global trade is expanding: it amounts to beggar-thy-neighbour currency warfare to do so in a zero-sum world with no growth at all in shipping volumes this year.

It is little wonder that the first whiff of this mercantilist threat has set off an August storm, ripping through global bourses. The Bloomberg commodity index has crashed to a 13-year low. Europe and America have failed to build up adequate safety buffers against a fresh wave of imported deflation. Core prices are rising at a rate of barely 1pc on both sides of the Atlantic, a full six years into a mature economic cycle. One dreads to think what would happen if we tip into a global downturn in these circumstances, with interest rates still at zero, quantitative easing played out, and aggregate debt levels 30 percentage points of GDP higher than in 2008. “The world economy is sailing across the ocean without any lifeboats to use in case of emergency,” said Stephen King from HSBC in a haunting report in May.

Whether or not Beijing sees matters in this light, it knows that the US Congress would react very badly to any sign of currency warfare by a country that racked up a record trade surplus of $137bn in second quarter, an annual pace above 5pc of GDP. Only deficit states can plausibly justify resorting to this game. Senators Schumer, Casey, Grassley, and Graham have all lined up to accuse Beijing of currency manipulation, a term that implies retaliatory sanctions under US trade law. Any political restraint that Congress might once have felt is being eroded fast by evidence of Chinese airstrips and artillery on disputed reefs in the South China Sea, just off the Philippines. It is too early to know for sure whether China has in fact made a conscious decision to devalue. Bo Zhuang from Trusted Sources said there is a “tug-of-war” within the Communist Party.

All the central bank (PBOC) has done so far is to switch from a dollar peg to a managed float. This is a step closer towards a free market exchange, and has been welcomed by the US Treasury and the IMF. The immediate effect was a 1.84pc fall in the yuan against the dollar on Tuesday, breathlessly described as the biggest one-day move since 1994. The PBOC said it was a merely “one-off” technical adjustment. If so, one might also assume that the PBOC would defend the new line at 6.32 to drive home the point. What is faintly alarming is that the central bank failed to do so, letting the currency slide a further 1.6pc on Wednesday before reacting. The PBOC put out a soothing statement, insisting that “currently there is no basis for persistent depreciation” of the yuan and that the economy is in any case picking up. So take your pick: conspiracy or cock-up.

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Hints?

Devaluation Hints at China’s Rising Distress Over Economy (NY Times)

Whenever China’s economy swooned in recent downturns, its currency never buckled. It held steady, or strengthened, even as China’s neighbors or trading partners scrambled to cut the value of their own currencies to deal with the fallout. With the Chinese renminbi now taking its biggest plunge in decades, the worry is that the country’s already slowing economy is even worse off and the government is panicking. By the official measures, the economy is growing at 7%, right in line with government targets. It is a steady pace that the leadership has indicated can support decent job growth and put more money into consumers’ pockets. But a look below the surface shows a different, more worrisome picture. The data coming out of China, too, is somewhat suspect.

Economists now wonder whether, despite official figures showing growth, some provinces and regions could be dealing with outright recessions. “To be honest, no one has a clue where the economy is, and I don’t think that it’s properly measured,” said Viktor Szabo, a senior investment manager at Aberdeen Asset Management. “Definitely there is a slowdown. You can have an argument about what level it is, but it’s not 7%,” he added. The government’s aggressive action on the currency has brought the economy into sharp focus. China allowed the renminbi to weaken even further on Wednesday after a sharp devaluation the previous day. The currency’s official fixing against the dollar is down 3.5% over the last two days. On a typical day, the renminbi rises or falls just a small fraction of a percentage point.

While the government said the decision was intended to make the currency more market oriented, the devaluation was also largely a gift to exporters. In relative terms, it makes China’s shipments of clothing or electronics to consumers in the United States or Europe more affordable. “I don’t see this mini-devaluation as some kind of outrageous act,” said George Magnus, an economic adviser to the bank UBS and an associate at Oxford University’s China center. “But it is part of an array of other economic and financial stimulus measures designed to shore up the flagging growth rate.” The government has taken the usual steps by cutting interest rates and freeing up more money for banks to lend. But the leadership has also turned to more unconventional means in recent months to try to cushion the blow as the economy’s once-runaway expansion sinks back to earth.

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“The PBOC is telling people that if they want to take their money out, please do..”

Yuan Bear in Wilderness in 2014 Now Warns of China Credit Crisis (Bloomberg)

In a March 2014 report, Daiwa Securities Co. senior economist Kevin Lai forecast a 10% drop in the yuan by the end of 2015 and warned China needed “very delicate” policy to avert a crisis. He’s still worried, and no longer so alone. The currency has devalued 3.7% since Tuesday morning, when the People’s Bank of China cut its daily reference rate by a record and said it would let the market play a greater role in the fixing. Lai, whose uber-bearish prediction is now halfway to fulfillment, estimates China has some $3 trillion of dollar-denominated debt outstanding which has suddenly become more expensive. “The PBOC is telling people that if they want to take their money out, please do,” Lai said in an interview Wednesday.

“As the selling pressure increases, this could spin into a currency and a credit crisis. They’re exporting the crisis.” The yuan’s tumble roiled Asian currencies and equities this week, even as the central bank said there’s no economic basis for a continuous fall. The cost to insure Chinese government debt against nonpayment rose to the highest in two years, advancing six basis points Tuesday to 107.5 basis points, according to data provider CMA. Chinese corporations have sold bonds and gotten bank loans offshore at a record pace in the past three years and now are the biggest component of major fixed-income indexes in the region.

These issuers will buy dollars as they seek to protect themselves from the currency move, Lai said, increasing the pressure on the yuan and making it even more difficult to pay back their foreign dues. In his March 2014 note and a subsequent report in October, Lai outlined how fake export invoicing, metals purchases and disguised foreign investment had driven $1 trillion of short-term speculative flows into China. He sees the yuan falling to 6.60 per dollar, or more, by the end of 2015, from 6.44 now.

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Core deflation?!

China’s Slowdown Threatens Euro’s Core More Than Periphery (Reuters)

Few parts of the world will remain unscathed by the plunging stock markets and economic slowdown rocking China, but the companies of Europe’s soft underbelly may weather it best. Countries comprising the euro zone’s periphery, such as Spain, Italy and Portugal, have relatively small exposure to the world’s growth engine. Core countries like Germany, France and The Netherlands have much deeper links. Strong demand from China has fuelled the boom in Germany’s German auto industry, the success of France’s luxury and fashion empires and solid growth in the Dutch and Finnish chemicals and capital goods sectors. Investment by their companies has grown accordingly.

But that demand may be cooling. China’s factory activity shrank in July at the fastest rate in two years, the country’s stock markets have slumped 30% since mid-June and growth could soon fall below 7% for the first time since early 2009. “Germany has products China wants. But we’ve got slowing global trade, slowing global growth, and Germany has already benefited from its currency weakness advantage,” said Stewart Richardson, partner at RMG Wealth Management in London.” “Germany suffers if China suffers. So on European equities, the periphery outperforms Germany,” he said. European stocks have been the destination of choice for investors this year, with cash flowing in from emerging markets and the United States. A net $80 billion has gone into European equity funds this year, according to Bank of America Merrill Lynch.

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Now’s the time for Tsipras to be bold.

Greece Is About To Be Dismantled And Fed To Profit-Hungry Corporations (Ind.)

Greece is heading towards its third “bailout”. This time €86 billion is on the table, which will be packaged up by international lenders with a bundle of austerity and sent off to Greece, only to return to those same lenders in the very near future. We all know the spiralling debt cannot and will not be repaid. We all know the austerity to which it is tied will make Greece’s depression worse. Yet it continues. If we look deeper, however, we find that Europe is not led by the terminally confused. By taking those leaders at their word, we’re missing what’s really going on in Europe. In a nutshell, Greece is up for sale, and its workers, farmers and small businesses will have to be cleared out of the way.

Under the eye-watering privatisation programme, Greece is expected to hand over its €50 billion of its “valuable state assets” to an independent body under the control of the European institutions, who will proceed to sell them off. Airports, seaports, energy systems, land and property – everything must go. Sell your assets, their contrived argument goes, and you’ll be able to repay your debt. But even in the narrow terms of the debate, selling off profitable or potentially profitable assets leaves a country less able to repay its debts. Unsurprisingly the most profitable assets are going under the hammer first. The country’s national lottery has already been bought up. Airports serving Greece’s holiday islands look likely to be sold on long-term lease to a German airport operator.

The port of Pireus looks likely to be sold to a Chinese shipping company. Meanwhile, 490,000 square meters of Corfu beachfront have been snapped up by a US private equity fund. It has a 99-year lease for the bargain price of €23million. According to reporters, the privatisation fund is examining another 40 uninhabited islands as well as a massive project on Rhodes which includes an obligatory golf course. Side-by-side with the privatisation is a very broad programme of deregulation which declares war on workers, farmers and small businesses. Greece’s many laws that protect small business such as pharmacies, bakeries, and bookshops from competition with supermarkets and big businesses are to be swept away. These reforms are so specific that the EU is writing laws on bread measurements and milk expiry dates. Incredibly, Greece is even being told to make its Sunday opening laws more liberal than Germany’s. Truly a free market experiment is being put into place.

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Let’s please never forget: Opposing views discussed out in the open are democracy’s lifeblood.

Greek Government Criticizes Rebel Lawmakers Before Bailout Vote (Reuters)

The Greek government criticized rebels within its ranks intent on opposing a new bailout deal in Thursday night’s parliamentary vote, saying a government without a majority “cannot go far” and raising the possibility of early elections. With opposition support, parliament is preparing to approve the €85 billion bailout deal that Greece needs to avoid defaulting on a debt repayment next week. The agreement is expected to easily pass since opposition parties have promised to support Prime Minister Alexis Tsipras to ensure Greece does not return to financial chaos. But the vote will test the strength of a rebellion by anti-austerity lawmakers of Tsipras’s leftist Syriza party, which could raise pressure on him to call snap elections as early as September.

Government spokeswoman Olga Gerovasili said that after the parliamentary vote, the focus would shift to a meeting of euro zone finance ministers on Friday who must also back the bailout, Greece’s third in the past five years. However, she acknowledged there would be a parliamentary rebellion and signaled that the government would struggle in the coming months if Syriza remained disunited. “It is known that some Syriza lawmakers will not vote in favor of the accord,” she told Mega TV. “A government that does not have a governing majority cannot go far.” Far-left members of Syriza insist the government should stand by its promises on which it was elected in January to reverse waves of spending cuts and tax rises imposed since 2010, which have had a devastating effect on an already weak economy.

The rebels, who include some former ministers, have already voted against the government on the austerity deal, angered by Tsipras’s capitulation to the creditors’ demands as Greece edged close to an economic precipice last month. As Greece needs the deal to make a €3.2 billion debt repayment to the ECBon Aug. 20, Tsipras asked parliamentary speaker Zoe Konstantopoulou to expedite debate on the bill approving the bailout. Konstantopoulou, a Syriza hardliner who opposes the deal, responded by calling a series of parliamentary committee meetings to consider the bill on Thursday, delaying the start of the plenary debate that is likely to last well beyond midnight before the vote is held.

Gerovasili made clear the government’s displeasure. “Ms Konstantopoulou has her own ways,” she said. “There are two differing views which are creating disharmony.” Pressed on speculation that Syriza might formally split, leading to elections in the autumn, she said: “It is possible that in the future there could be procedures to seek a new mandate from the people… This will happen when there is an assessment that there must be fresh elections.”

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“The IMF… is throwing up its hands collectively despairing at a program that is simply founded on unsustainable debt…”

Varoufakis: Greece Bailout Deal ‘Will Not Work’ (AFP)

Greece’s former finance minister Yanis Varoufakis on Wednesday warned that the latest bailout deal was doomed to fail despite Prime Minister Alexis Tsipras saying he was “confident” of ending economic uncertainty. In a implicit criticism of his former ally Tsipras, he told BBC radio: “Ask anyone who knows anything about Greece’s finances and they will tell you this deal is not going to work.” “The Greek finance minister… says more or less the same thing,” he added. The controversial politician resigned the day after Greeks voted against a proposed bailout in a July 5 referendum, accusing the country’s creditors of “terrorism.” Varoufakis told the BBC that Germany’s veteran Finance Minister Wolfgang Schaeuble had had to “go to the Bundestag and effectively confess this deal is not going to work”.

“The IMF… is throwing up its hands collectively despairing at a program that is simply founded on unsustainable debt… and yet this is a program that everybody is working towards implementing,” he said. Tsipras on Wednesday said he was confident that his debt-crippled nation would secure loan support from a third international bailout which is up for parliamentary approval this week. “I am and remain confident that we will succeed in reaching a deal and in loan support (from the European Stability Mechanism)… that will end economic uncertainty,” he said. Greece and its creditors are under pressure to finalize a deal by next Thursday when Athens must repay some €3.4 billion to the ECB. Germany on Wednesday said it needed more time to comb through the 400-page text setting out the fiscal and other policy measures Greece must take in exchange for the lifeline.

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“Much better than Varoufakis. More conciliatory, constructive – and modest.”

Varoufakis Exit Marked ‘Sea Change’ In Greek Talks, EU Sources Say (Reuters)

Negotiations on a bailout deal between Greece and its creditors reached this week underwent a “sea change” after combative finance minister Yanis Varoufakis was removed from the talks, EU sources said on Wednesday. The deal, which will provide Greece with the new money needed to prevent financial meltdown and keep it from crashing out of the single currency, was reached after months of often bad-tempered talks with international lenders. The mood apparently changed after the appointment of Euclid Tsakolotos as finance minister in place of Varoufakis early last month. “There was a sea change in the negotiations with the Greek authorities in recent weeks,” one of the EU sources said.

“The new Greek finance minister has an absolutely different attitude in the talks than the previous one. Talks were very constructive,” the source said. Varoufakis, a charismatic motorbike-riding academic who described himself as an “erratic Marxist,” was feted as a political rock star when he took the finance portfolio after the left-wing Syriza party emerged victorious from an election in January. But as the debt talks dragged on the confrontational Varoufakis lost the confidence of his negotiating partners, irritating German Finance Minister Wolfgang Schaeuble in particular and accusing Europe of “terrorism” in its attempts to resolve the Greek crisis.

He further riled the Germans, the main contributors to a series of rescue packages for Greece, by saying an outline deal last month was like the Versailles treaty which forced crushing reparations on Germany after World War One and led to the rise of Adolf Hitler. In a development that prompted widespread shock and disbelief in Greece, Varoufakis confirmed that he had made secret preparations to hack into citizens’ tax codes to create a parallel payment system. Mild-mannered and professorial, Tsakalotos marked a clear change in style from his leather-jacketed predecessor. One official in Brussels described him last month as: “Much better than Varoufakis. More conciliatory, constructive – and modest.”

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The conquering force.

Germany Criticises Greek Bailout Agreement (FT)

Germany criticised an outline deal between Athens and its bailout monitors as insufficient, upsetting eurozone attempts to smooth the way to a new €85bn rescue for Greece. Germany’s finance ministry outlined its objections in a paper circulated to its eurozone counterparts just hours before the Greek parliament was due to debate on Wednesday the painful austerity and reform package that had been reluctantly accepted by the radical left government of prime minister Alexis Tsipras. It also sets up a potentially difficult meeting of eurozone finance ministers on Friday who are due to decide whether to approve the deal — or grant Athens a bridging loan to give the negotiators time to rework the agreement.

Berlin did not make clear whether it would ask for such a delay on Friday. The finance ministry denied that it was rejecting the deal and said it was only raising “some open questions that need to be addressed in the euro group”. These include delays in planned reforms, debt sustainability and the role of the IMF, which has helped EU institutions finance the past two Greece packages. The German intervention revives memories of last month’s acrimonious summit, when Wolfgang Schäuble, Berlin’s hawkish finance minister, openly aired the possibility of a temporary Greek exit from the euro. It punctures the optimism that had been building in Brussels that a deal could be done in time for Athens to pay a €3.2bn debt to the ECB on August 20.

The German paper concedes that “large parts” of the reform programme laboriously agreed last month were indeed included in the outline deal, ranging from tax collection to competition in tourist property rentals. But it says some measures are delayed until October or November and some others “are not yet specified”. Berlin is particularly concerned about a proposed delay in establishing a planned €50bn privatisation fund, which is due to take control of Greek state assets. Amid arguments about how authority over this fund would be shared by the Greek government and EU institutions, the negotiators agreed on a task force to sort out the issue by December. The German report says drily: “Just to set up a task force is not sufficient.”

[..] Meanwhile, the memorandum of understanding, obtained by the FT, makes clear how challenging the plan is for Mr Tsipras’s government, not least in the face of splits in his ruling Syriza party. It highlights how extensive external control of the Greek economy will be, how quickly Athens must implement reforms in the coming weeks and months, and how demanding are the budget plans.

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Will the entire country be affected? Is a Troika loan in the offing?

There’s A New Twist In The Austrian Bad Bank Saga (Coppola)

Austria’s province of Carinthia is in trouble again. Followers of the Hypo Alpe Adria (HAA) saga will know that under its erstwhile leader Joerg Haider (who conveniently died in a car crash in 2008) Carinthia’s government guaranteed HAA’s loans, bonds and subordinated debt to the value of about €11bn, which is more than 5 times its annual income. These are “deficiency guarantees”, which means they only kick in if the borrower actually defaults. When HAA failed in 2008, the Austrian federal government prevented the guarantees from kicking in by nationalizing it, buying it from the German Landesbank BayernLB for a nominal €1. From then until 2014 it remained frozen, rescued but not resolved.

Clearly things couldn’t stay that way for ever. Last year, the Austrian federal government passed a law called the Hyposanierunggesetz (Hypo Reorganisation Law), usually known as HaaSanG, which voided deficiency guarantees issued by Carinthia on €890m of HAA subordinated debt and on 800m euros of loans from BayernLB. HAASanG was intended to protect taxpayers by forcing losses on to subordinated debt holders and BayernLB. But the subordinated debt holders fought back. And in a landmark judgment, the Austrian Constitutional Court has found in their favor. Declaring HaaSanG “unconstitutional”, it has repealed it, reinstating not only the guarantees on subordinated debt but also the guarantees on BayernLB’s loans. Carinthia is now once again liable for losses under these guarantees.

Admittedly, this is only 1.69bn of Carinthia’s 11bn total notional liability. And the Austrian federal government is still insisting that the much larger bail-in of subordinated and unsecured creditors under Austria’s version of the European Bank Recovery & Resolution Directive (EBRRD), known as BaSAG, will proceed. The repeal of HAASanG is a setback, but not a showstopper. But there is more to come.

The Austrian newspaper Der Standard reports that the Vienna Commercial Court has petitioned for repeal of BaSAG’s special bail-in provisions for Heta at the Constitutional Court. If this is successful, then all guarantees on HAA assets currently in the HETA “bad bank” and against which bonds have been issued will be reinstated. We know Carinthia can’t possibly honor the guarantees, so if subordinated debt holders suddenly rank pari passu with senior unsecured debt holders because of their reinstated guarantees, losses will have to be shared by everyone equally – including the Austrian federal government.

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Cute, but..

Lawrence Lessig Wants To Crowdfund His Way To The Presidency (Forbes)

Lawrence Lessig wants to make it to the Oval Office, pass just one bill and then resign. On Tuesday, the Harvard Law professor and reform activist, released a video announcing his exploratory bid for president. In the video, Lessig explained his plan to run as a “referendum president” on a platform of sweeping political reform—the core of which would be campaign finance reform—in an effort to fix America’s “rigged” political system. In keeping with his platform, Lessig launched a crowdfunding campaign to fund his potential run. If he manages to raise one million dollars by Labor Day, Lessig will officially declare his candidacy and make a run for office for 2016.

Lessig believes that money in politics has stripped America of a truly democratic political system and wants to change that. This is not the first time the professor has delved into politics. In 2014, Lessig co-founded Mayday PAC, a super PAC billed as “a crowdfunded Super PAC to end all Super PACs and the corruption of private money.” With 27 days to go, Lessig’s crowdfunding campaign raised more than $128,800 at the time of publication. Forbes spoke with Lessig about his plan to “unrig the system,” his motivations and the challenges he has yet to face. Can you explain your plan and this concept of a “referendum president”? How would your plan circumvent all these issues facing the other democratic candidates currently in the running?

It’s my view that if we had a referendum on this issue with the American public, it would overwhelmingly produce support for the reform. But we don’t have a referendum power, so this is a way to hack on into the system. So a candidate for president says, “I am going to do this one thing and when that thing is over, I will step aside.” In that process you have a candidate whose election would be a mandate for that one thing and could stand up to Congress and say, here is that one thing and if you don’t do it, you are going to have the wrath of the people who say that you have not respected their mandate. When they do it then we will have created a Congress that is actually free to lead rather than compelled to follow the money.

What motivated you to explore this option?

I had been watching the Democratic Party candidates talk about really incredibly bold and inspiring ideas about what they want to do in the next administration, but I come from Massachusetts—our senator is Elizabeth Warren—and as Warren likes to say, “the system is rigged.” What increasingly frustrated me was the failure to connect that fact to strategy for actually making it possible to achieve these bold ideas. The system is rigged, what that means is that you have to unrig the rigged system first. So what is the plan for unrigging that rigged system and where is the priority for that plan? What led me to do this was recognizing that I didn’t think that any of the candidates actually could do this. If you enter office office with a mandate that is divided among seven or eight issues, it’s hard to stand up to the most powerful interest in the United States and say to them that you are going to have to yield to this because so much else is hanging on what the administration does.

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Country in a coma.

Canadians Piling Up ‘Good Debt,’ Report Says (Globe and Mail)

Canadians are borrowing more, but much of what they owe is “good debt,” a new report suggests. The average amount of debt Canadians now hold rose significantly to about $93,000 in June from $76,140 a year earlier, according to the report released Wednesday by Bank of Montreal. The report, which looks at major contributors to overall household debt in the country, found credit card debt and mortgage debt listed as the top two types. Of the Canadians surveyed, 80% said they are in debt. While the percentage stayed the same as last year, so-called “smart purchases” such as home purchases, home repairs/renovations and education expenses topped the list of debt sources for Canadians.

49% of Canadians said buying a home was a significant contributor to their current debt, with 34% saying it was the main factor. Home sales are up 6% in the first half of 2015 from the same period a year ago, according to BMO Economics, with hot housing markets adding fuel to debt levels. Last week, The Real Estate Board of Greater Vancouver reported sales of existing homes in the region soared 30% in July compared with a year earlier, causing benchmark prices to rise more than 11%. The Toronto Real Estate Board reported home sales rising 8% to hit a new July record, with prices jumping 9.4% for the year. “Home sales remain resilient across most of the country, led by soaring transactions in Toronto and Vancouver,” said BMO Nesbitt Burns Inc. economist Sal Guiatieri.

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“Conservative government used public money on outreach campaign to counter criticism..” I say sue ’em.

Canadian Government Spent Millions On Secret Tar Sands Advocacy (Guardian)

Conservative government used public money on outreach campaign to counter criticism of controversial Alberta tar sands. Canada’s Conservative government spent several million dollars on a tar sands advocacy fund as its push to export the oil faltered, documents reveal. In its 2013 budget, the government invested $30 million over two years on public relations advertising and domestic and international “outreach activities” to promote Alberta’s tar sands. The outreach activities, which cost $4.5 million and were never publicly disclosed, included efforts to “advance energy literacy amongst BC First Nations communities.” The Harper government has been trying to ship tar sands to the British Columbia coast via two pipelines, Northern Gateway and Kinder Morgan, which scores of First Nations communities have pledged to block because of environmental and economic concerns.

With Canada’s federal election in full swing, Prime Minister Stephen Harper has been on the defensive over his backing of the tar sands, which have derailed the country’s emissions reduction targets and, since the crash of oil prices, destabilized its economy. According to the government documents, other outreach activities included research to support Canadian lobbying against a European environmental measure that would have hampered tar sands exports. Canada has succeeded in delaying the measure – the EU Fuel Quality Directive – several times. The government also partnered with the International Energy Agency to “advance knowledge” about unconventional fuels like fracked shale gas, which several Canadian provinces have passed moratoriums against.

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“.. as if the octopus genome had been “put into a blender and mixed“

Don’t Freak Out, But Scientists Think Octopuses ‘Might Be Aliens’ (IE)

Not to send you into a meltdown or anything but octopuses are basically ‘aliens’ – according to scientists. Researchers have found a new map of the octopus genetic code that is so strange that it could be actually be an “alien”. The first whole cephalopod genome sequence shows a striking level of complexity with 33,000 protein-coding genes identified – more than in a human. Not only that, the octopus DNA is highly rearranged – like cards shuffled and reshuffled in a pack – containing numerous so-called “jumping genes” that can leap around the genome. “The octopus appears to be utterly different from all other animals, even other molluscs, with its eight prehensile arms, its large brain and its clever problem-solving abilities,” said US researcher Dr Clifton Ragsdale, from the University of Chicago.

“The late British zoologist Martin Wells said the octopus is an alien. In this sense, then, our paper describes the first sequenced genome from an alien.” The scientists sequenced the genome of the California two-spot octopus in a study published in the journal Nature. They discovered unique genetic traits that are likely to have played a key role in the evolution of characteristics such as the complex nervous system and adaptive camouflage. Analysis of 12 different tissues revealed hundreds of octopus-specific genes found in no other animal, many of them highly active in structures such as the brain, skin and suckers. The scientists estimate that the two-spot octopus genome contains 2.7 billion base pairs – the chemical units of DNA – with long stretches of repeated sequences.

And although the genome is slightly smaller than a human’s, it is packed with more genes. Reshuffling was a key characteristic of the creature’s genetic make-up. In most species, cohorts of certain genes tend to be close together on the double-helix DNA molecule. A gene is a region of DNA that contains the coded instructions for making a protein. In the octopus, however, there are no such groupings of genes with related functions. For instance, Hox genes – which control body plan development – cluster together in almost all animals but are scattered throughout the octopus genome. It was as if the octopus genome had been “put into a blender and mixed”, said co-author Caroline Albertin, also from the University of Chicago.

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 July 31, 2015  Posted by at 10:15 am Finance Tagged with: , , , , , , , , , , ,  4 Responses »
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Harris&Ewing Preparations for inauguration of Woodrow Wilson 1913

September Is Looking Likelier for Fed’s First Rate Increase (NY Times)
SYRIZA To Hold ‘Emergency’ Congress In September (DW)
China’s Stocks Extend Slump in Worst Monthly Decline Since 2009
Corporate Giants Sound Profits Alarm Over China Slowdown (FT)
“The Virtuous Emerging Market Cycle Is Turning Vicious” (Albert Edwards)
Italy Is The Most Likely Country To Leave The Euro (WaPo)
The Greek Coup: Liquidity as a Weapon of Coercion (Ellen Brown)
Greece Crisis Escalates As IMF Witholds Support For New Bail-Out (Telegraph)
IMF Won’t Help Finance Greece Without Debt Relief (Bloomberg)
Will The IMF Throw The Spanner In The Works? (Varoufakis)
The Lethal Deferral of Greek Debt Restructuring (Varoufakis)
A Most Peculiar Friendship (Varoufakis)
The Defeat of Europe – my piece in Le Monde Diplomatique (Varoufakis)
The Last Thing the Eurozone Needs Is an Ever Closer Union (Legrain)
Bailout Money Goes to Greece, Only to Flow Out Again (NY Times)
German FinMin Schäuble Wants To Reduce European Commission Remit (DW)
The IMF’s Euro Crisis (Ngaire Woods)
Deutsche Bank’s Hard Road Ahead (WSJ)
Deutsche Bank Didn’t Archive Chats Used by Employees Tied to Libor Probe (WSJ)
US Spied On Japan Government, Companies: WikiLeaks (AFP)
Europe Could Solve The Migrant Crisis – If It Wanted (Guardian)
Why The Language We Use To Talk About Refugees Matters So Much (WaPo)

Two big events in September?!

September Is Looking Likelier for Fed’s First Rate Increase (NY Times)

The Federal Reserve remains on track to raise interest rates later this year, and perhaps as soon as its next policy meeting in mid-September, as economic growth continues to meet its expectations. The Fed issued an upbeat assessment of economic conditions on Wednesday after a two-day meeting of its policy-making committee. While growth remains disappointing by past standards, the Fed said the economy continued to expand at a “moderate” pace, which is driving “solid job gains and declining unemployment.” The statement suggested officials didn’t need to see much more progress before they started to increase their benchmark rate, which they have held near zero since December 2008.

The Fed, which said after the last meeting, in June, of the Federal Open Market Committee that it wanted to see “further improvement” in labor markets, said on Wednesday that “some further improvement” would now suffice. “The addition of the word ‘some’ may appear minor, but the Fed doesn’t add words willy-nilly to the F.O.M.C. statement,” wrote Michael Feroli at JPMorgan Chase. “It leaves the door wide open to a September liftoff, but still retains the optionality to delay hiking if the jobs reports disappoint between now and mid-September.” The decision to keep rates near zero for at least a few more weeks was unanimous, supported by all 10 voting members of the committee. But a number of those officials have said in recent months that they do not think the Fed should wait much longer.

The Fed’s policy committee next meets Sept. 16 and 17. Surveys of economic forecasters show that most expect the Fed to start raising interest rates at that September meeting. But measures of market expectations point to a December liftoff.[..] The Fed has kept its benchmark interest rate near zero as the main element in its campaign to revive economic growth and increase employment after the Great Recession. And it has repeatedly extended that stimulus campaign in the face of disappointing economic news, to avoid raising rates too soon. In recent months, however, officials including Janet L. Yellen, the Fed’s chairwoman, have suggested they are growing more worried about waiting too long. Economic growth has increased after a rough winter, and employment expanded by an average of 208,000 jobs a month during the first half of the year, dropping the unemployment rate to 5.3%.

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Number 2.

SYRIZA To Hold ‘Emergency’ Congress In September (DW)

The SYRIZA party is seen as sliding toward a split prompted by a rebellion by about a quarter of the party’s Left Platform legislators who voted against austerity measures that were part of the conditions agreed on July 13 in Brussels to secure up to €86 billion in new financing. According to analysts the party differences challenge Tsipras’ authority and complicate Greece’s bailout negotiations. It began when a faction of left wing SYRIZA legislators turned against Tsipras when Parliament voted on the bailout, which passed only with support from opposition parties. Thus the party congress that has been proposed by Prime Minister Tsipras is seen as a test of his leadership.

In a televised address to the central committee, Tsipras warned that the government could fall if it was not supported by its leftist deputies. “The first leftist government in Europe after the Second World War is either supported by leftist deputies, or it is brought down by them because it is not considered leftist,” he said. As conflicts arose in the central committee, a meeting was called to attempt to settle those differences over whether Tsipras should have accepted Greece’s third bailout from international creditors. The central committee meeting coincided with the arrival in Athens of the IMF’s head of mission, Delia Velculescu. According to a report in Thursday’s Financial Times, an internal document showed the IMF board had been told that Greece’s levels of debt and past record of slow or non-existent reform disqualify it for a third.

According to the leaked IMF document, the Washington based lender could take months to decide whether it will take part in a fresh bailout. The IMF’s Velculescu was due to join the other international creditors: the EC, the ECB and the European Stability Mechanism. The four institutions are due to meet Friday with Finance Minister Euclid Tsakalotos and Economy Minister Giorgos Stathakis.

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..and drag everything down with them..

China’s Stocks Extend Slump in Worst Monthly Decline Since 2009

China’s stocks fell, with the benchmark index heading for its worst monthly drop in almost six years, as the government struggles to rekindle investor interest amid a $3.5 trillion rout. The Shanghai Composite Index slid 0.8% to 3,677.83 at 1:02 p.m., dragged down by energy and industrial companies. The gauge has tumbled 14% this month, the biggest loss among 93 global benchmark gauges tracked by Bloomberg, as margin traders cashed out and new equity-account openings tumbled amid concern valuations are unsustainable. While unprecedented state intervention spurred a 18% rebound by the Shanghai Composite from its July 8 low, volatility returned on Monday when the gauge plunged 8.5%.

Outstanding margin debt on mainland bourses has fallen about 40% since mid-June, while the number of new stock investors shrank last week to the smallest since the government started releasing figures in May. Individuals account for more than 80% of stock trading in China. “The support measures may have been less effective than what Beijing imagined,” said Bernard Aw, a strategist at IG Asia. The Hang Seng China Enterprises Index of mainland shares in Hong Kong has tumbled 14% this month, poised for its worst loss since September 2011. The gauge rose 0.4% Friday, while the Hang Seng Index advanced 0.4%. The CSI 300 Index added 0.1%. Industrial & Commercial Bank of China has been the biggest drag on the Shanghai Composite this month, sinking 9.9%. China Petroleum & Chemical has tumbled 14%, while Ping An Insurance plunged 18%.

Turnover has fallen as volatility surged. The value of shares traded on the Shanghai exchange on Thursday was 53% below the June 8 peak, while a 100-day measure of price swings on the Shanghai Composite climbed to its highest in six years on Friday. Valuations remain elevated after a 29% drop by the benchmark equity gauge. The median stock on mainland bourses trades at 66 times reported earnings, higher than in any of the world’s 10 largest markets, according to data compiled by Bloomberg. That compares with a multiple of 13 in Hong Kong. “The volatility in A-share markets, which was boosted by the surge in margin financing, has made share price performance deviate from the value of stocks in unpredictable ways,” said June Lui, portfolio manager at LGM Investments. “We have been cautious on investing in A shares.”

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“Companies thought that China was the land of opportunity, but it’s not living up to that promise..”

Corporate Giants Sound Profits Alarm Over China Slowdown (FT)

Some of the world’s largest companies have sounded the alarm about the slowdown in the Chinese economy, warning that weaker growth would hit profits in the second half of the year. Car companies such as PSA Peugeot Citroën, Audi and Ford have slashed growth forecasts while industrial goods groups such as Caterpillar and Siemens have all spoken out on the negative impact of China. The warnings are a sign that China’s weaker growth and its stock market rout this month are creating a headache for global corporates that have long relied heavily on the world’s second-largest economy to drive revenues. Audi and France’s Renault both cited China as they cut their global sales targets on Thursday, with Christian Klingler at Audi parent Volkswagen, predicting “a bumpy road” in the country this year.

Peugeot slashed its growth forecast for China from 7% to 3% while earlier this week Ford predicted the first full-year sales fall for the Chinese car market since 1990. US companies have also been affected. “In Asia, the China market has clearly slowed,” said Akhil Johri, chief financial officer at United Technologies, the US industrial group at the company’s earnings call last week. “Real estate investment, new construction starts and floor space sold are all under pressure.” “Companies thought that China was the land of opportunity, but it’s not living up to that promise,” says Ludovic Subran, chief economist at Euler Hermes. “They realise the business environment is changing for the worse.”

China’s slowdown, which follows years of extraordinary growth, has been particularly startling in recent months, with figures last week showing that the country’s factory activity contracted by the most in 15 months in July. The poor figures coincide with a time of turbulence on the Chinese stock market. The Shanghai Composite shed 8.5% on Monday, its steepest drop since 2007. The fall came despite a string of interventions by Beijing to stem the slide in equities, including a ban on short selling and an interest-rate cut. In the consumer goods sector, brewer Anheuser-Busch InBev said on Thursday that volumes fell 6.5% in China as a result of “poor weather across the country and economic headwinds”. Among industrial goods companies, Schneider Electric, one of the world’s largest electrical equipment makers, reported a 12% fall in first-half profit and cut guidance because of “weak construction and industrial markets” in China.

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As predicted here.

“The Virtuous Emerging Market Cycle Is Turning Vicious” (Albert Edwards)

Investors are right to feel that the recent rout in commodity prices differs from that seen in the second half of last year. Back then there was more of a feeling that the decline in the oil price was just partly a catch-up with the weakness seen in other commodities earlier in the year and partly due to a very sharp rise in the dollar, most notably against the euro. Indeed the excellent Gerard Minack in his Downunder Daily points out that US$ strength and expanding supply have been headwinds over the past four years. But the recent sharp decline in prices has been noteworthy for its breadth: prices have fallen in all major currencies, and across all major commodity groups. This suggests that global growth has slowed.” But why?

One theme that has played out as we expected over the last year has been the rapidly deteriorating balance of payments (BoP) situation of emerging market (EM) countries, as reflected in sharply declining foreign exchange (FX) reserves (the BoP is the sum of the current account balance and private sector capital flows). We like to stress the causal relationship between swings in EM FX reserves and their boom and bust cycle. The 1997 Asian crisis demonstrated that there is no free lunch for EM in fixing a currency at an undervalued exchange rate. After a few years of export-led boom, market forces are set in train to destroy that artificial prosperity. Boom turns into bust as the BoP swings from surplus to deficit. Why?

When an exchange rate is initially set at an undervalued level, surpluses typically result in both the current account (as exports boom) and capital account (as foreign investors pour into the country attracted by fast growth). The resultant BoP surplus means that EM authorities intervene heavily in the FX markets to hold their currency down. We saw that both in the mid-1990s and before and after the 2008 financial crisis. Heavy foreign exchange intervention to hold an EM currency down creates money and is QE in all but name and underpins boom-like conditions on a pro-cyclical basis. Eventually this boom leads to a relative rise in inflation and a chronically rising real exchange rate even though the nominal rate might be fixed.

EM competitiveness is lost and the trade surplus declines or in extremis swings to large deficit. The capital account can also swing to deficit as fixed direct investment flows reverse as EM countries are no longer cost effective locations for plant. Ultimately as the BoP swings to deficit and FX reserves fall, QE goes into reverse, slowing the economy and exacerbating capital flight. As a virtuous EM cycle turns vicious (like now), commodity prices, EM asset prices and currencies come under heavy downward pressure – at which point it is difficult to discern any longer the chicken from the egg. In my view the egg was definitely laid a few years back as EM real exchange rates rose sharply and the rapid rises of FX reserves began to stall.

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The MSM sets the tone of the debate by calling refugees ‘migrants’, and by calling SYRIZA and M5S ‘populist’. And no, Matt, Greece did not get to choose between Grexit and austerity, but obliteration and austerity.

Italy Is The Most Likely Country To Leave The Euro (WaPo)

What do you call a country that has grown 4.6%—in total—since it joined the euro 16 years ago? Well, probably the one most likely to leave the common currency. Or Italy, for short. It’s hard to say what went wrong with Italy, because nothing ever went right. It grew 4% its first year or so in the euro, but almost not at all in the 15 years since. Now, that’s not to say that it’s been flat the whole time. It hasn’t. It got as much as 14% bigger as it was when it joined the euro, before the 2008 recession and 2011 double-dip erased most of that progress. But unlike, say, Greece, there was never much of a boom. There has only been a bust. The result, though, has been the same. As you can see below, Greece and Italy have both grown a meager 4.6% the past 16 years, although they took drastically different paths to get there.

Part of it is that Italy, as the IMF points out, has real structural problems. It’s hard to start a business, hard to expand one, and hard to fire people, which makes employers wary about hiring them in the first place. That’s led to a small business dystopia, where nobody can achieve the kind of economies of scale that would make them more productive. But, at the same time, Italy had these problems even before it had the euro, and it still managed to grow back then. So part of the problem is the euro itself. It’s too expensive for Italian exporters, and too restrictive for the government that’s had to cut its budget even more than it otherwise would have. This doesn’t make Italy unique—the euro has hurt even the best-run countries—but what does is that Italy’s populists have noticed.

Why is that? Well, more than anything else, the common currency has given Europe a severe case of cognitive dissonance. People hate austerity, but they love the euro even more—they have an emotional attachment to everything it stands for. The problem, though, is that the euro is the reason they have to slash their budgets so much in the first place (at least as long as the ECB will force their banks shut if they don’t). So anti-austerity parties have felt like they have to promise the impossible if they want any hope of gaining power: that they can end the budget cuts without ending the country’s euro membership.

But as Greece’s Syriza party found out, that strategy, if you want to call it one, only gives your people unrealistic expectations and Europe no reason to help you out. The other countries, after all, don’t want to reward what, in their view, is bad budgetary behavior, if not blackmail. And so Greece was all but given an ultimatum: either leave the euro or do even more austerity than it was originally told to do. It chose austerity.

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Good piece by Ellen, and certainly not only because she quotes me.

The Greek Coup: Liquidity as a Weapon of Coercion (Ellen Brown)

In the modern global banking system, all banks need a credit line with the central bank in order to be part of the payments system. Choking off that credit line was a form of blackmail the Greek government couldn’t refuse. Former Greek finance minister Yanis Varoufakis is now being charged with treason for exploring the possibility of an alternative payment system in the event of a Greek exit from the euro. The irony of it all was underscored by Raúl Ilargi Meijer, who opined in a July 27th blog:

The fact that these things were taken into consideration doesn’t mean Syriza was planning a coup . . . . If you want a coup, look instead at the Troika having wrestled control over Greek domestic finances. That’s a coup if you ever saw one. Let’s have an independent commission look into how on earth it is possible that a cabal of unelected movers and shakers gets full control over the entire financial structure of a democratically elected eurozone member government. By all means, let’s see the legal arguments for this.

So how was that coup pulled off? The answer seems to be through extortion. The ECB threatened to turn off the liquidity that all banks – even solvent ones – need to maintain their day-to-day accounting balances. That threat was made good in the run-up to the Greek referendum, when the ECB did turn off the liquidity tap and Greek banks had to close their doors. Businesses were left without supplies and pensioners without food. How was that apparently criminal act justified? Here is the rather tortured reasoning of ECB President Mario Draghi at a press conference on July 16:

There is an article in the [Maastricht] Treaty that says that basically the ECB has the responsibility to promote the smooth functioning of the payment system. But this has to do with . . . the distribution of notes, coins. So not with the provision of liquidity, which actually is regulated by a different provision, in Article 18.1 in the ECB Statute: “In order to achieve the objectives of the ESCB [European System of Central Banks], the ECB and the national central banks may conduct credit operations with credit institutions and other market participants, with lending based on adequate collateral.” This is the Treaty provision. But our operations were not monetary policy operations, but ELA [Emergency Liquidity Assistance] operations, and so they are regulated by a separate agreement, which makes explicit reference to the necessity to have sufficient collateral. So, all in all, liquidity provision has never been unconditional and unlimited.

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Don’t forget there is a fourth ‘institution’ that’s party to the talks now, the ESM. It really is a quadriga.

Greece Crisis Escalates As IMF Witholds Support For New Bail-Out (Telegraph)

Talks over an €86bn bail-out for Greece have been thrown into turmoil after just four days as the IMF said it would have no involvement in the country until it receives explicit assurances over debt sustainability. An IMF official said the fund would withhold financial support unless it has guarantees Greece can carry out a “comprehensive” set of reforms and will be the beneficiary of debt relief from its European creditors. The comments came after the IMF’s executive board was told that the institution could no longer continue pumping more money into the debtor nation, according to a leaked document seen by the Financial Times. The Washington-based Fund has been torn over its involvement in Greece – its largest ever recipient country.

The world’s “lender of last resort’ said it would continue talks with its creditor partners and the Leftist government of Athens, but made it clear the onus of keeping Greece in the eurozone now fell on Europe’s reluctant member states. “There is a need for difficult decisions on both sides… difficult decisions in Greece regarding reforms, and difficult decisions among Greece’s European partners about debt relief,” said the official. “One should not be under the illusion that one side of it can fix the problem.” The delay could last well into next year, forcing the other two-thirds of the Troika – the ECB abd EC – to bear the full costs of keeping Greece afloat.

Athens was forced to request a new IMF rescue package last week after its existing programme – which expired in March 2016 – no longer satisfied IMF conditions to ensure growth and a return to the financial markets for the crisis-ridden economy. IMF managing director Christine Lagarde escalated calls for a “significant debt restructuring” this week. Debt forgiveness has long been the institution’s key condition for extending its involvement in the country after five years of bail-outs. But Europe’s creditor powers – led by Germany – have resisted write-offs, insisting that talks on debt relief can only proceed once the Greek government has satisfied demands to raise taxes, cut pensions spending and privatise assets.

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I’m wondering how much of this was preconceived.

IMF Won’t Help Finance Greece Without Debt Relief (Bloomberg)

The IMF reiterated its unwillingness to provide more financing to Greece without debt relief by euro-member states and further reforms from the Greek government. The Washington-based lender’s management won’t support a new loan program unless Greece’s debt is sustainable in the medium term and the country’s budget is fully financed for 12 months, an IMF official told reporters Thursday on a conference call. The official spoke on condition of anonymity. The IMF will require an explicit, concrete commitment of debt relief from euro-member countries before moving forward with a new loan, the official said. European countries haven’t had detailed discussions with the IMF on a debt restructuring, according to the official.

Greek Finance Minister Euclid Tsakalotos asked the IMF for a new loan in a letter dated July 23 addressed to fund Managing Director Christine Lagarde. Greece has an active loan program with the IMF that expires in March and has about €17 billion that could still be disbursed. In agreeing to a bailout this month that could give Greece as much as €86 billion, most of it financed by euro-zone countries, Greece agreed to seek continued IMF financing beyond March. IMF staff told the fund’s executive board on Wednesday that Greece doesn’t currently qualify for a loan, the Financial Times reported Thursday, citing a confidential summary of the meeting.

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And did it know this when Tsipras signed the latest agreement? Moreover, what does that mean legally?

Will The IMF Throw The Spanner In The Works? (Varoufakis)

“IMF cannot join Greek rescue, board told”… reports Peter Spiegel from Brussels in today’s Financial Times. He adds:“Some Greek officials suspect the IMF and Wolfgang Schäuble, the hardline German finance minister, are determined to scupper a Greek rescue despite this month’s agreement to move forward with a third bailout. In a private teleconference made public this week, Yanis Varoufakis, the former finance minister, said he feared the Greek government would pass new rounds of economic reforms only for the IMF to pull the plug on the programme later this year. “According to its own rules, the IMF cannot participate in any new bailout. I mean, they’ve already violated their rules twice to do so, but I don’t think they will do it a third time,” Mr Varoufakis said. “Dr Schäuble and the IMF have a common interest: they don’t want this deal to go ahead.”

The key issue, of course, is not so much whether the IMF will be part of the deal – a typical fudge could, for instance, be concocted with the IMF providing ‘technical assistance’ to an ESM-only program. The issue is whether the promised debt relief which, astonishingly will be discussed only after the new loan agreement is signed and sealed, will prove adequate – assuming it is granted at all. Or whether, as I very much fear, the debt relief will be too little while the austerity involved proves catastrophically large.

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4 different articles by Yanis today; he’s getting very prolific.

The Lethal Deferral of Greek Debt Restructuring (Varoufakis)

The point of restructuring debt is to reduce the volume of new loans needed to salvage an insolvent entity. Creditors offer debt relief to get more value back and to extend as little new finance to the insolvent entity as possible. Remarkably, Greece’s creditors seem unable to appreciate this sound financial principle. Where Greek debt is concerned, a clear pattern has emerged over the past five years. It remains unbroken to this day. In 2010, Europe and the International Monetary Fund extended loans to the insolvent Greek state equal to 44% of the country’s GDP. The very mention of debt restructuring was considered inadmissible and a cause for ridiculing those of us who dared suggest its inevitability. In 2012, as the debt-to-GDP ratio skyrocketed, Greece’s private creditors were given a significant 34% haircut.

At the same time, however, new loans worth 63% of GDP were added to Greece’s national debt. A few months later, in November, the Eurogroup (comprising eurozone members’ finance ministers) indicated that debt relief would be finalized by December 2014, once the 2012 program was “successfully” completed and the Greek government’s budget had attained a primary surplus (which excludes interest payments). In 2015, however, with the primary surplus achieved, Greece’s creditors refused even to discuss debt relief. For five months, negotiations remained at an impasse, culminating in the July 5 referendum in Greece, in which voters overwhelmingly rejected further austerity, and the Greek government’s subsequent surrender, formalized in the July 12 Euro Summit agreement.

That agreement, which is now the blueprint for Greece’s relationship with the eurozone, perpetuates the five-year-long pattern of placing debt restructuring at the end of a sorry sequence of fiscal tightening, economic contraction, and program failure. Indeed, the sequence of the new “bailout” envisaged in the July 12 agreement predictably begins with the adoption – before the end of the month – of harsh tax measures and medium-term fiscal targets equivalent to another bout of stringent austerity. Then comes a mid-summer negotiation of another large loan, equivalent to 48% of GDP (the debt-to-GDP ratio is already above 180%). Finally, in November, at the earliest, and after the first review of the new program is completed, “the Eurogroup stands ready to consider, if necessary, possible additional measures… aiming at ensuring that gross financing needs remain at a sustainable level.”

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Funny story.

A Most Peculiar Friendship (Varoufakis)

Crises sever old bonds. But they also forge splendid new friendships. Over the past months one such friendship has struck me as a marvellous reflection of the new possibilities that Europe’s crisis has spawned. When I was living in Britain, between 1978 and 1988, Lord (then Norman) Lamont represented everything that I opposed. Even though I appreciated Margaret Thatcher’s candour, her regime stood for everything I resisted. Indeed, there was hardly a demonstration against her government that I failed to join; the pinnacle being the 1984 miners’ strike that engulfed me on a daily basis, in all its bitterness and glory.

For Lord Lamont, a stalwart conservative politician, an investment banker, and long standing Treasury and cabinet minister under both Margaret Thatcher and John Major, my ilk surely represented everything that was objectionable in the youth of the day. And yet since I became minister, and especially after my resignation, Lord Lamont has been steadfast in his support and extremely generous with his counsel. Indeed, I would be honoured if he allowed me to count him as a good friend. Fascinatingly, neither Lord Lamont nor I have changed our political spots much. He remains a solid conservative thinker and politician. And I continue to hold on to my erratic Marxism. Which brings me to the fascinating question: How is such a friendship possible?

The answer is simple: A common commitment to democracy and to the indispensability of Parliament’s sovereignty. Tories like Lord Lamont and lefties of my sort may disagree strongly on society’s ends. But we agree that rules and markets are means to social ends that can only be determined by a sovereign people through a Parliament in which that sovereignty is vested. We may disagree on the functioning, capacity and limits of markets, or even on the precise meaning of freedom in a social context. But we are as one in the conviction that monetary policy cannot de-politicised, not be allowed to determine the limits of a nation’s sovereignty. The notion that a people’s sovereignty ends when insolvency beckons is anathema to both.

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Posted this yesterday as a pic, and awkward format. Here’s the text as Varoufakis posted it.

The Defeat of Europe – my piece in Le Monde Diplomatique (Varoufakis)

Perhaps the most dispiriting experience was to be an eyewitness to the humiliation of the Commission and of the few friendly, well-meaning finance ministers. To be told by good people holding high office in the Commission and in the French government that “the Commission must defer to the Eurogroup’s President”, or that “France is not what it used to be”, made me almost weep. To hear the German finance minister say, on 8th June, in his office, that he had no advice for me on how to prevent an accident that would be tremendously costly for Europe as a whole, disappointed me. By the end of June, we had given ground on most of the troika’s demands, the exception being that we insisted on a mild debt restructure involving no haircuts and smart debt swaps.

On 25th June I attended my penultimate Eurogroup meeting where I was presented with the troika’s ‘take it or leave it’ offer. Having met the troika nine tenths of the way, we were expecting them to move towards us a little, to allow for something resembling an honourable agreement. Instead, they backtracked in relation to their own, previous position (e.g. on VAT). Clearly they were demanding that we capitulate in a manner that demonstrates our humiliation to the whole world, offering us a deal that, even if we had accepted, would destroy what is left of Greece’s social economy. On the following day, Prime Minister Tsipras announced that the troika’s ultimatum would be put to the Greek people in a referendum. A day later, on Friday 27th June, I attended my last Eurogroup meeting.

It was the meeting which put in train the foretold closure of Greece’s banks; a form of punishment for our audacity to consult our people. In that meeting, President Dijsselbloem announced that he was about to convene a second meeting later that evening without me; without Greece being represented. I protested that he cannot, of his own accord, exclude the finance minister of a Eurozone member-state and I asked for legal advice on the matter. After a short break, the advice came from the Secretariat: “The Eurogroup does not exist in European law. It is an informal group and, therefore, there are no written rules to constrain its President.” In my mind, that was the epitaph of the Europe that Adenauer, De Gaulle, Brandt, Giscard, Schmidt, Kohl, Mitterrand etc. had worked towards. Of the Europe that I had always thought of, ever since I was a teenager, as my point of reference, my compass.

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It may be the best recipe for blowing up the Union, though.

The Last Thing the Eurozone Needs Is an Ever Closer Union (Legrain)

‘Fuite en avant’ is a wonderful French expression that is hard to translate into English. Literally, it means “forward flight.” Better approximations include “headlong rush,” “panicky compulsion to exacerbate a crisis,” or even “unconsciously throwing oneself into a dreaded danger.” Faced with Berlin’s power grab to reshape the eurozone along German lines, Paris’s response has been quintessential fuite en avant: proposing even closer ties with Germany in order to try to mitigate the damage done by existing ones. But if a marriage is miserable and divorce is not yet in the cards, might it not be better to have separate bedrooms? To be fair to France’s president, François Hollande, a headlong rush toward greater intimacy has been the default response to previous crises thrown up by European integration, so it is the most common prescription now.

If a fiscal and political union is truly necessary for the eurozone to survive, as many argue, his proposal of a democratically elected eurozone government that would act as a fiscal counterpart to the ECB and – whisper it softly – curb German power may make sense. Italy’s finance minister has suggested something similar. But creating a eurozone government to bridge the economic and political divisions exacerbated by the crisis would be putting the cart before the horse. Or to put it differently, it would be seeking an institutional fix to a much deeper political conflict. Yes, well-functioning common institutions would make Europe’s dysfunctional monetary union work better: Federalism works fine in the United States and elsewhere.

But that is because there is broad political acceptance of those federal institutions’ legitimacy — which, in turn, is because the United States is a nation-state with enough of a sense of shared political community to accept majoritarian democratic rule. Unlike the eurozone. Germany and France sharing a government? Hard to imagine. Germany and Greece? Impossible. Huge numbers of Europeans are unhappy with how the eurozone works. Many don’t trust national elites, let alone European ones. Regrettably, the crisis has revived old stereotypes, such as lazy southerners, and has created new grievances, notably the Troika’s usurping national democracy. Is the solution really to concentrate more powers in Brussels, with France and others giving up even more control over their economic destiny? Is that what French people are clamoring for? Eurozone governance isn’t working, so let’s have more of it. Brilliant.

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Even the NYT wakes up to reality.

Bailout Money Goes to Greece, Only to Flow Out Again (NY Times)

Since 2010 other eurozone countries and the IMF have given Greece about €230 billion in bailout funds. In addition, the ECB has lent about €130 billion to Greek banks. The latest financial aid package is following a similar pattern to the previous ones. Only a fraction of the money, should Greece get it, will go toward healing the economy. Nearly 90% would go toward debts, interest and supporting Greece’s ailing banks. The European Commission has offered to set aside an additional €35 billion development aid package to jump-start the economy. But the funds are difficult to obtain and will become available only in small trickles later in the year. Greeks understandably feel that the latest bailout package is not likely to benefit them very much.

[..] Growth was never the primary consideration when Greece first started receiving bailouts. Back in 2010, political leaders in the eurozone as well as top officials of the IMF were terrified that Greece would default on its debts, imposing huge losses on banks and other investors and threatening a renewed financial crisis. The debt was largely held by Greek and international banks. And Greece, officials feared, could be another Lehman Brothers, the investment bank that collapsed in 2008, setting off a global panic. Forcing banks to take losses on Greek debt “would have had immediate and devastating implications for the Greek banking system, not to mention the broader spillover effects,” said John Lipsky, first deputy managing director of the I.M.F. at the time, during a contentious meeting of the organization’s executive board in May 2010, according to recently disclosed minutes.

To prevent Greece from defaulting on debts, creditors granted Athens a €110 billion bailout in May 2010. But that did not calm fears that other heavily indebted countries might also default. The Greek lifeline was soon followed by bailouts for Ireland and Portugal. When Greece again veered toward a default in summer of 2011, it got a second bailout worth €130 billion, not all of which has been disbursed. Instead of writing off those countries’ debts — standard practice when a country borrows more than it can pay — other eurozone countries and the I.M.F. effectively lent them more money. One of the main goals was to protect European banks that had bought Greek, Irish and Portuguese bonds in hopes of making a tidy profit.

The banks and investors did not escape the pain. In 2012, when Greece was again at risk of default, investors accepted a deal that paid them only about half the face value of their holdings. Much of the aid dispensed to Greece has revolved around banks. Since 2010, Greece has received €227 billion from other eurozone countries and the I.M.F. Of that, €48.2 billion went to replenish the capital of Greek banks. More than €120 billion went to pay debt and interest, and around €35 billion went to commercial banks that had taken losses on Greek debt.

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Whether he said it or not, surely no FinMin should have any say in such matters. it’s utterly ridiculous that at least Merkel doesn’t tell him to shut up.

German FinMin Schäuble Wants To Reduce European Commission Remit (DW)

German Finance Minister Wolfgang Schäuble wants to see the executive body of the EU, the European Commission (EC), lose some of the core fields of responsibility it has previously borne, such as the legal supervision of the EU domestic market, a newspaper reported on Thursday. The “Frankfurter Allgemeine Zeitung” quoted Brussels diplomats as saying that at a meeting of EU finance ministers two weeks ago, Schäuble had called for a quick discussion between EU states about how the EC could fulfil its original functions, which also include monitoring competition within the EU. Schäuble was concerned that the body’s increasing political activities made it incapable of carrying out its function of watching over the correct implementation of the European treaties, according to the report.

The paper said Schäuble has proposed setting up new, politically independent bodies to take over monitoring tasks in view of the EC’s increasing political activity as a “European government.” According to the paper’s report, Schäuble feels that EC president Jean-Claude Juncker exceeded the body’s remit in recent negotiations over new loans for Greece. The German finance minister has often stated that the EC was not empowered to negotiate over Greek loans, but that this was the task of the Eurogroup – made up of eurozone finance ministers – as the representative of European creditors, the paper said. Schäuble attracted much criticism during the recent negotiations on a third bailout for Greece because of his proposal for Greece to temporarily leave the common euro currency.

Juncker has often emphasized that he wants to lead a “political commission.” The German Finance Ministry has dismissed the report, saying that Schäuble merely thought it “important for the Commission to find the right balance between its political function and its role as guardian of the treaties.” This had nothing to do with a “disempowerment of the Commission,” the ministry said.

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Having no morals eventually comes back to haunt.

The IMF’s Euro Crisis (Ngaire Woods)

Over the last few decades, the IMF has learned six important lessons about how to manage government debt crises. In its response to the crisis in Greece, however, each of these lessons has been ignored. The Fund’s participation in the effort to rescue the eurozone may have raised its profile and gained it favor in Europe. But its failure, and the failure of its European shareholders, to adhere to its own best practices may eventually prove to have been a fatal misstep. One key lesson ignored in the Greece debacle is that when a bailout becomes necessary, it should be done once and definitively. The IMF learned this in 1997, when an inadequate bailout of South Korea forced a second round of negotiations. In Greece, the problem is even worse, as the €86 billion ($94 billion) plan now under discussion follows a €110 billion bailout in 2010 and a €130 billion rescue in 2012.

The IMF is, on its own, highly constrained. Its loans are limited to a multiple of a country’s contributions to its capital, and by this measure its loans to Greece are higher than any in its history. Eurozone governments, however, face no such constraints, and were thus free to put in place a program that would have been sustainable. Another lesson that was ignored is not to bail out the banks. The IMF learned this the hard way in the 1980s, when it transferred bad bank loans to Latin American governments onto its own books and those of other governments. In Greece, bad loans issued by French and German banks were moved onto the public books, transferring the exposure not only to European taxpayers, but to the entire membership of the IMF.

The third lesson that the IMF was unable to apply in Greece is that austerity often leads to a vicious cycle, as spending cuts cause the economy to contract far more than it would have otherwise. Because the IMF lends money on a short-term basis, there was an incentive to ignore the effects of austerity in order to arrive at growth projections that imply an ability to repay. Meanwhile, the other eurozone members, seeking to justify less financing, also found it convenient to overlook the calamitous impact of austerity. Fourth, the IMF has learned that reforms are most likely to be implemented when they are few in number and carefully focused. When a country requires assistance, it is tempting for lenders to insist on a long list of reforms. But a crisis-wracked government will struggle to manage multiple demands.

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Split it up already.

Deutsche Bank’s Hard Road Ahead (WSJ)

There’s an old joke in which a tourist asks the way to some pleasant town and gets the answer: “Well, I wouldn’t start from here.” Deutsche Bank’s new leadership should appreciate that more than most. John Cryan, the new chief executive, and the equally new chief financial officer, Marcus Schenck, have one of the biggest jobs among global banks in terms of the cuts needed to both its balance sheet and its cost base. They also, like many other big, global banks must wrestle with a business model in which investors seemingly have lost faith—Deutsche’s stock hasn’t traded above book value since the financial crisis.

Investors will be updated in late October on how these two think they can reshape the bank. Investors will hope for something better than a return on tangible equity of more than 10% in the medium term, which was the miserable target announced before the leadership change in April. One thing investors were told by Mr. Cryan in his first results briefing Thursday is that they shouldn’t have to stump up yet more equity following the bank’s €8 billion rights issue last year. This could prove a challenge to fulfill, though, despite the healthier activity seen in the first half. This pushed Deutsche’s revenues up 20% from a year earlier. Unfortunately, the bank’s costs remain stubbornly high. In the first half, these were equal to 70% of revenue, even excluding hefty legal charges related to the interbank lending rate scandal.

Meanwhile, cutting the bank’s complexity and inefficiencies could take years by Mr. Cryan’s admission. Until this is done, Deutsche will struggle to generate much capital. The bank is actually in a reasonable position on the risk-based capital measure: its core equity tier one capital ratio is 11.4%. However, its leverage ratio is just 3.6% against a target of 5%. And in its largest unit, the investment bank, the leverage ratio is even worse at less than 3%. Changing that will still require a big cut in the investment bank’s assets and liabilities. Mr. Cryan says he will change the bank’s fortunes by weaning it off an overreliance on the balance sheet to generate revenues.

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Fine it $100 billion, see what’s left after that.

Deutsche Bank Didn’t Archive Chats Used by Employees Tied to Libor Probe (WSJ)

A month after reaching a $2.5 billion settlement over interest rate rigging, Deutsche Bank AG told regulators its disclosures may have been incomplete because it accidentally failed to archive electronic chats involving its employees, people familiar with the matter said. The bank is working to recover the records from its systems but might have permanently lost an unknown number of chats dating back to 2005, the people said. The disclosure poses a new regulatory headache for the German lender. Deutsche Bank already has been criticized by regulators for shortcomings in retaining data, including the destruction of hundreds of audiotapes that U.K. regulators said could have been relevant to their investigation into manipulation of the London interbank offered rate, or Libor.

Deutsche Bank disclosed the problem to regulators, including the New York Department of Financial Services, in May, a month after the bank entered into the settlement with a handful of authorities in the U.S. and the U.K., the people familiar with the matter said. “After we discovered this software defect in one of our internal messaging systems, we reported it to our regulators and are presently working with them to rectify it,” the bank said in an emailed statement. “We have been able to recover a majority of the chats via a backup system.” The bank expects the recovery process to be complete in about a month, one of the people familiar with the matter said.

Deutsche Bank so far hasn’t found any communications the bank considers new or relevant to the Libor investigation, one of the people said. The Department of Financial Services, New York state’s top banking regulator, has begun a probe of the incident. It is examining whether potential violations that should have been covered by the Libor settlement weren’t reported because of the error, according to one of the people familiar with the matter. The office is also investigating whether or not the error was intentional and when the bank discovered it.

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Think Abe was surprised to see this?

US Spied On Japan Government, Companies: WikiLeaks (AFP)

The US spied on senior Japanese politicians, its top central banker and major companies including conglomerate Mitsubishi, according to documents released Friday by WikiLeaks, which published a list of at least 35 targets. The latest claim of US National Security Agency espionage follows other documents that showed snooping on allies including Germany and France. There is no specific mention of wiretapping Prime Minister Shinzo Abe but senior members of his government, including Trade Minister Yoichi Miyazawa and Bank of Japan governor Haruhiko Kuroda were targets of the bugging by US intelligence, WikiLeaks said.

Japan is one of Washington’s key allies in the Asia-Pacific region and they regularly consult on defence, economic and trade issues. The spying goes back at least as far as Abe’s brief first term, which began in 2006, WikiLeaks said. Abe swept to power again in late 2012. “The reports demonstrate the depth of US surveillance of the Japanese government, indicating that intelligence was gathered and processed from numerous Japanese government ministries and offices,” it said. “The documents demonstrate intimate knowledge of internal Japanese deliberations” on trade issues, nuclear and climate change policy, among others, it added.

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Europe has no morals.

Europe Could Solve The Migrant Crisis – If It Wanted (Guardian)

Refugees from many countries – not just Sudan but Syria, Eritrea, Afghanistan and beyond – are taking clandestine journeys across Europe in search of a country that will give them the chance to rebuild their lives. Living in Britain and watching what unfolds in Calais – such as the revelation that in recent days there have been 1,500 attempts by migrants to enter the Channel tunnel – it can seem as if they’re all heading here, but in reality Britain ranks mid-table in the proportion of asylum claims it receives relative to population. The number of refugees at Calais has grown because the number of refugees in Europe as a whole has grown. For the most part, their journeys pass unseen, until they hit a barrier – the English Channel; the lines of police at Ventimiglia on the Italy-France border; the forests of Macedonia – that creates a bottleneck and leads to scenes of destitution and chaos.

The political rhetoric that surrounds these migrants makes it harder to understand why they take such journeys. Often when government ministers are called on to comment, they will try to make a distinction between refugees (good) and “economic migrants” (bad). But a refugee needs to think about more than mere survival – like the rest of us, they’re still faced with the question of how to live. What they find when they reach Europe is a system best described as a “lottery”. In theory the EU has a common asylum system; in reality it varies hugely, with different countries more or less likely to accept different nationalities and with provisions for asylum seekers ranging from decent homes and training to support integration in some countries, to tent camps or detention centres, or being left to starve on the street, in others.

Countries that bear the brunt of new waves of migration, such as Italy, Bulgaria or Greece, find little solidarity from their richer neighbours. The EU spends far more on surveillance and deterrence than on improving reception conditions. For as long as these inequalities continue, refugees will keep on moving. This is a crisis of politics as much as it is one of migration, and I think it will develop in one of two ways. Either Europe will continue to militarise its borders and squabble over resettlement quotas of refugees as if they were toxic waste; or we will find the courage and leadership to create a just asylum system where member states pull together to ensure that refugees are offered a basic standard of living wherever they arrive.

The first option, though alluring to many, will only intensify the chaos it’s supposed to protect us from: we put up a fence at Greece’s land border with Turkey, so refugees take to the Mediterranean instead. Britain and France accuse each other of being a soft touch on asylum seekers, so they allow the situation in Calais to fester. For as long as refugees are treated as a burden, they will be the target of racism and violence.

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I repeat: the MSM sets the tone of the debate by calling refugees ‘migrants’, and by calling SYRIZA and M5S ‘populist’.

Why The Language We Use To Talk About Refugees Matters So Much (WaPo)

In an interview with British news station ITV on Thursday, David Cameron told viewers that the French port of Calais was safe and secure, despite a “swarm” of migrants trying to gain access to Britain. Rival politicians soon rushed to criticize the British prime minister’s language: Even Nigel Farage, leader of the anti-immigration UKIP party, jumped in to say he was not “seeking to use language like that” (though he has in the past). Cameron clearly chose his words poorly. As Lisa Doyle, head of advocacy for the Refugee Council puts it, the use of the word swarm was “dehumanizing” – migrants are not insects. It was also badly timed, coming as France deployed riot police to Calais after a Sudanese man became the ninth person in less than two months to die while trying to enter the Channel Tunnel, an underground train line that runs from France to Britain.

Much of the outrage over the British leader’s comments misses an important point, however: Cameron is far from alone when it comes to troubling use of language to describe the world’s current migration crisis. Language is inherently political, and the language used to describe migrants and refugees is politicized. The way we talk about migrants in turn influences the way we deal with them, with sometimes worrying consequences. Consider even the most basic elements of the language about migration. Writing in the Guardian earlier this year, Mawuna Remarque Koutonin asked why white people were often referred to as expatriates. “Top African professionals going to work in Europe are not considered expats,” Koutonin wrote. “They are immigrants.” [..]

There are worries that even “migrant,” perhaps the broadest and most neutral term we have, could become politicized. Trilling pointed out that Katie Hopkins, a controversial British writer and public figure, likened migrants to “cockroaches” in a column published in the Sun. “As both government policy and political rhetoric casts these people as undesirables — a threat to security; a criminal element; a drain on resources — the word used to describe them takes on a new, negative meaning,” Trilling says. Words such as “swarm” or “invasion” can also have implications just as negative when used in connection to refugees. James Hathaway at the University of Michigan Law School, says that these words are “clearly meant to instill fear.” That’s dangerous because the situation in Calais is already inflamed and full of fear: British tabloids are even calling for Cameron to send in the army, as if the migrants represented a foreign power preparing to invade.

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Jul 302015
 
 July 30, 2015  Posted by at 9:41 am Finance Tagged with: , , , , , , ,  7 Responses »
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Harris&Ewing Harding inauguration 1921

The Great Reset – Act II (Russell Napier)
Treason Charges: What Lurks Behind The Bizarre Allegations (Varoufakis)
This Is A Recipe For A European Civil War (AEP)
The Defeat Of Europe (Yanis Varoufakis)
If Varoufakis Is Charged With Treason, Then Dijsselbloem Should Be As Well (ZH)
In Defence Of Yanis Varoufakis (El-Erian)
Yanis Varoufakis Is Being Pilloried For Doing What Had To Be Done (Legrain)
After Greece, Everyone Will Want A Plan B To Leave The Euro (MarketWatch)
Bulgaria, Greece’s New Treasury (Novinite)
Hay For Cheese? Barter Booms in Cash-Squeezed Rural Greece (Reuters)
Tsipras Faces New Challenge From Syriza Hardliners Over Greek Bailout (FT)
‘Iron Lady’ To Play Central Role In Next Act Of Greek Bailout Drama (Guardian)
Spain Thinks Its Workers Are Not Really As Unemployed As They Say (Economist)
Nigel Farage On EU Referendum And The Mess In Dover-Calais (BBCBreakfast)

The Automatic Earth has been warning of deflation since its inception. There is no other possible outcome once deleveraging starts. And deleveraging has been postponed, and postponed only, through QE programs. Which are a bottomless pit.

The Great Reset – Act II (Russell Napier)

In May 2011 this analyst changed his mind about the impact of the monetary love being spread around the world by developed world central bankers. He stopped forecasting higher inflation and instead foresaw the return of deflation. Fresh from the battering in the deflationary storm of 2007-2009 investors did not want to hear that such monetary love would be in vain. They counted on central bankers then, just as they are counting on them now, to restore a level of nominal GDP growth that can prevent the severe burning of another painful deleveraging through default. Central bankers, the argument goes, need to boost financial asset prices to achieve higher nominal growth and that higher growth, when finally achieved, will be good for asset prices anyway.

So while their love may be for higher nominal GDP growth, the goodwill this spreads to asset prices should be priced in if it succeeds in creating inflation. However, a list of some prices that have been falling from last year – gold, steel, iron ore, copper, crude, coffee, cocoa, live cattle, hogs, orange juice, wheat, sugar, cotton, natural gas, silver, platinum, palladium, aluminium and tin – must raise questions as to whether there is reflation or whether this monetary love is in vain. This analyst is told that such major decline in prices across a broad spectrum of commodities and products represents a supply shock and not the failure of central banks to spur demand! Such supply side synchronicity is highly unlikely. This is nothing less than a failure to reflate and it is due to the growing crisis in Emerging Markets.

It was in a report called The Great Reset, in May 2011, that this analyst suggested the world was more likely to move towards deflation rather than higher inflation. There were many reasons for this change of mind, but key to it was a realisation that EM external surpluses had peaked. That sounds like a rather esoteric reason to change from an inflationist to deflationist stance, and it was not one that was of any concern to investors. However, the end of a long period (1998-2011) when external surpluses, combined with exchange-rate intervention policies, forced EM to create more domestic high-powered money, while simultaneously depressing the yields on US Treasuries, seemed both important and deflationary. Crucially, The Great Reset predicted this decline in EM external surpluses would produce tighter monetary policy in both EM and the developed world despite the efforts of central bankers to prevent it.

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Smear.

Treason Charges: What Lurks Behind The Bizarre Allegations (Varoufakis)

The bizarre attempt to have me indicted me on… treason charges, allegedly for conspiring to push Greece out of the Eurozone, reflects something much broader. It reflects a determined effort to de-legitimise our five-month long (25th January to 5th July 2015) negotiation with a troika incensed that we had the audacity to dispute the wisdom and efficacy of its failed program for Greece. The aim of my self-styled persecutors is to characterise our defiant negotiating stance as an aberration, an error or, even better from the perspective of Greece’s troika-friendly oligarchic establishment, as a ‘crime’ against Greece’s national interest. My dastardly ‘crime’ was that, expressing the collective will of our government, I personified the sins of:

• Facing down the Eurogroup’s leaders as an equal that has the right to say ‘NO’ and to present powerful analytical reasons for rebuffing the catastrophic illogicality of huge loans to an insolvent state in condirion of self-defeating austerity

• Demonstrating that one can be a committed Europeanist, strive to keep one’s nation in the Eurozone, and, at the very same time, reject Eurogroup policies which damage Europe, deconstruct the euro and, crucially, trap one’s country in austerity-driven debt-bondage

• Planning for contingencies that leading Eurogroup colleagues, and high ranking troika officials, were threatening me with in face-to-face discussions

• Unveiling how previous Greek governments turned crucial government departments, such as the General Secretariat of Public Revenues and the Hellenic Statistical Office, into departments effectively controlled by the troika and reliably pressed into the service of undermining the elected government.

It is amply clear that the Greek government has a duty to recover national and democratic sovereignty over all departments of state, and in particular those of the Finance Ministry. If it does not, it will continue to forfeit the instruments of policy making that voters expect it to utilise in pursuit of the mandate they bestowed upon it. In my ministerial endeavours, my team and I devised innovative methods for developing the Finance Ministry’s tools to deal efficiently with the troika-induced liquidity crunch while recouping executive powers previously usurped by the troika with the consent of previous governments.

Instead of indicting, and persecuting, those who, to this day, function within the public sector as the troika’s minions and lieutenants (while receiving their substantial salaries from the long-suffering Greek taxpayers), politicians and parties whom the electorate condemned for their efforts to turn Greece into a protectorate are now persecuting me, aided and abetted by the oligarchs’ media. I wear their accusations as badges of honour. The proud and honest negotiation that the SYRIZA government conducted from the first day we were elected has already changed Europe’s public debates for the better. The debate about the democratic deficit afflicting the Eurozone is now unstoppable. Alas, the troika’s domestic cheerleaders do not seem able to bear this historic success. Their efforts to criminalise it will crash of the same shoals that wrecked their blatant propaganda campaign against the ‘No’ vote in the 5th July referendum: the great majority of the fearless Greek people.

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“So we now have a Europe where the political temperature is rising to boiling point: where the EMU elites are refusing to shift course; and where mischievous lawyers are concocting criminal charges against anybody daring to explore a way out of the trap.”

This Is A Recipe For A European Civil War (AEP)

It has come to this. The first finance minister of a eurozone country to draw up contingency plans for a possible euro exit is under investigation for treason. Greece’s chief prosecutor is examining criminal charges against a five-man “working group” in the country’s finance ministry for the sin of designing a “Plan B”, a parallel system of euro liquidity and bank payments that could – in extremis – lead to a return of the drachma. It is hard to see how a monetary union held together by judicial power, coercion and fear in this way can have a future in any of Europe’s ancient nation states. The criminalisation of any Grexit debate shuts off the option of an orderly return to the drachma, even though there is a high probability – some say a near certainty – that the latest EMU loan package for Greece will prove unworkable and precipitate the country’s exit from the single currency within a year.

As a matter of practical statecraft, this is sheer madness. The Greek newspaper Kathimerini – the voice of the oligarchy – reported that the charges would include “breach of duty, violation of currency laws and belonging to a criminal organisation”, as well as violating data privacy by hacking into the Greek tax base. The prosecutor appears to have latched onto a legal suit by a private lawyer accusing Yanis Varoufakis of treason. It is nothing less than an attempt to destroy the mercurial former finance minister, lest he return as an avenging political force. The Greek “Plan B” was approved from the outset by prime minister Alexis Tsipras. It was designed originally to create an alternative source of euro liquidity if the ECB cut off emergency funding for the Greek banking system.

The ECB did in fact do exactly that – arguably violating the ECB’s Treaty to uphold financial stability, and acting ultra vires in a purely political move as the enforcer of the creditors – when the Syriza government threw down the gauntlet with an anti-austerity referendum. Mr Varoufakis insists that his plan was based on California’s IOU scheme in 2009 to cover tax rebates and to pay contractors when liquidity dried up after the Lehman crisis. His purpose was to reflate the economy within the eurozone, not to leave it. Yet it had a double function, and there lies the alleged treason. “At the drop of a hat it could be converted to a new drachma,” he said.

Pablo Iglesias, the pony-tailed leader of Spain’s Podemos movement, has drawn his own conclusions after watching Europe’s first radical-Left government in modern times brought to its knees by liquidity asphyxiation, and then further crushed by internal forces within Greece. He accused Germany of imposing a Carthaginian settlement as punishment for daring to call a referendum, and warned that the “limits of democracy in Europe” are now brutally clear. The lesson to be learned is that if Podemos is elected in Spain it must expect a trial of strength (“medir fuerzas”) and make sure it takes power in the fullest sense. You can interpret this how you will, but there is a hint of Leninist defiance in these words, a warning that Podemos may feel compelled to launch pre-emptive strikes against the entreched positions of the Spanish establisment, in the media, the judiciary, the security forces and the commanding heights of the economy.

The fate of Syriza has clearly tainted the radical-Left brand. The EMU creditor powers have shown all too clearly that if you buck the system, your country will pay a bitter price. It is hard to explain to Spanish voters – or indeed to anybody – how Mr Tsipras could accept a package of draconian demands rejected by the Greek people in a landslide vote just a week earlier. Podemos has lost its electoral lead and has dropped to 17pc in the polls, trailing the Socialists by a wide margin. But it would be premature to conclude that this is the end of the story. The deeper message – still entering the collective consciousness – is that no Leftist government can pursue sovereign policies within the constraints of EMU.

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Le Monde Diplomatique has posted the article in picture format. Click the link to read.

The Defeat Of Europe (Yanis Varoufakis)

Le Monde Diplomatique has posted the article in picture format. Click the link to read.

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And Schäuble. And many others.

If Varoufakis Is Charged With Treason, Then Dijsselbloem Should Be As Well (ZH)

What makes matters confusing, is that the core allegation made by Varoufakis, namely that the Troika controls Greece tax revenues and had to be sabotaged, was strictly denied: European Commission spokeswoman Mina Andreeva on Tuesday described as “false and unfounded” Varoufakis’s claims that Greece’s General Secretariat for Public Revenues is controlled by the country’s creditors. In other words, if Andreeva is right, then Varoufakis’ transgression of threatening to hijack the Greek tax system was merely hot air, and the former finmin is guilty of nothing more than self-aggrandizement.

On the other hand, if Greece does find it has a legal basis to criminally charge Varoufakis with treason merely for preparing for a Plan B, then it brings up an interesting question: if Varoufakis was a criminal merely for preparing for existing the Euro, then comparable treason charges should also be lobbed against none other than Varoufakis’ nemesis – Eurogroup president and Dutch finance minister Jeroen Dijsselbloem. Recall from the November 28 post that “Netherlands, Germany Have Euro Disaster Plan – Possible Return to Guilder and Mark”, to wit:

The Dutch finance ministry prepared for a scenario in which the Netherlands could return to its former currency – the guilder. They hosted meetings with a team of legal, economic and foreign affairs experts to discuss the possibility of returning to the Dutch guilder in early 2012. At the time the Euro was in crisis, Greece was on the verge of leaving or being pushed out of the Euro and the debt crisis was hitting Spain and Italy hard. The Greek prime minister Georgios Papandreou and his Italian counterpart Silvio Berlusconi had resigned and there were concerns that the eurozone debt crisis was spinning out of control – leading to contagion and the risk of a systemic collapse.

A TV documentary broke the story last Tuesday. The rumours were confirmed on Thursday by the current Dutch minister of finance, Jeroen Dijsselbloem, and the current President of the Eurogroup of finance ministers in a television interview which was covered by EU Observer and Bloomberg. “It is true that [the ministry of] finance and the then government had also prepared themselves for the worst scenario”, said Dijsselbloem.

This is precisely what Varoufakis was doing too.

“Government leaders, including the Dutch government, have always said: we want to keep that eurozone together. But [the Dutch government] also looked at: what if that fails. And it prepared for that.” While Dijsselbloem said there was no need to be “secretive” about the plans now, such discussions were shrouded in secrecy at the time to avoid spreading panic on the financial markets.

Again, precisely like in the Greek scenario. In fact, if throwing people in jail, may round up Wolfi Schauble as well:

Jan Kees de Jager, finance minister from February 2010 to November 2012, acknowledged that a team of legal experts, economists and foreign affairs specialists often met at his ministry on Fridays to discuss possible scenarios. “The fact that in Europe multiple scenarios were discussed was something some countries found rather scary. They did not do that at all, strikingly enough”, said De Jager in the TV documentary. “We were one of the few countries, together with Germany. We even had a team together that discussed scenarios, Germany-Netherlands.”

When the EU Observer requested confirmation from Germany, the German ministry of finance did not officially deny that it had drawn up similar plans, stating simply: “We and our partners in the euro zone, including the Netherlands, were and still are determined to do everything possible to prevent a breakup of the eurozone.” [..] This is quite a revelation. At that time the German finance minister Wolfgang Schauble had said that the Euro could survive without Greece. Whether it could survive without the Dutch is another matter entirely.

Fast forward 3 years when Greece, too, was making preparations for “preventing the breakup of the eurozone” in doing precisely what Schauble wanted as recently as three weeks ago: implementing a parallel currency which would enable Greece to take its “temporary” sabbatical from the Eurozone. So one wonders: where are the legal suits accusing Dijsselbloem and Schauble of the same “treason” that Varoufakis may have to vigorously defend himself in a kangaroo court designed to be nothing but a spectacle showing what happens to anyone in Europe who dares to give Germany the finger, either literally or metaphorically.

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El-Erian comes laden with salt.

In Defence Of Yanis Varoufakis (El-Erian)

From blaming him for the renewed collapse of the Greek economy to accusing him of illegally plotting Greece’s exit from the eurozone, it has become fashionable to disparage Yanis Varoufakis, the country’s former finance minister. While I have never met or spoken to him, I believe that he is getting a bad rap (and increasingly so). In the process, attention is being diverted away from the issues that are central to Greece’s ability to recover and prosper – whether it stays in the eurozone or decides to leave. That is why it is important to take note of the ideas that Varoufakis continues to espouse. Greeks and others may fault him for pursuing his agenda with too little politesse while in office. But the essence of that agenda was – and remains – largely correct.

Following an impressive election victory by his Syriza party in January, Greece’s prime minister, Alexis Tsipras, appointed Varoufakis to lead the delicate negotiations with the country’s creditors. His mandate was to recast the relationship in two important ways: render its terms more amenable to economic growth and job creation; and restore balance and dignity to the treatment of Greece by its European partners and the IMF. These objectives reflected Greece’s frustrating and disappointing experience under two previous bailout packages administered by “the institutions”. In pursuing them, Varoufakis felt empowered by the scale of Syriza’s electoral win and compelled by economic logic to press three issues that many economists believe must be addressed if sustained growth is to be restored: less and more intelligent austerity; structural reforms that better meet social objectives; and debt reduction.

These issues remain as relevant today, with Varoufakis out of government, as they were when he was tirelessly advocating for them during visits to European capitals and in tense late-night negotiations in Brussels. Indeed, many observers view the agreement on a third bailout programme that Greece reached with its creditors – barely a week after Varoufakis resigned – as simply more of the same. At best, the deal will bring a respite – one that is likely to prove both short and shallow. [..] Now that he is out of office, Varoufakis is being blamed for much more than failing to adapt his approach to political reality. Some hold him responsible for the renewed collapse of the Greek economy, the unprecedented shuttering of the banking system, and the imposition of stifling capital controls.

Others are calling for criminal investigations, characterising the work he led on a plan B (whereby Greece would introduce a new payments system either in parallel or instead of the euro) as tantamount to treason. But, love him or hate him (and, it seems, very few people who have encountered him feel indifferent), Varoufakis was never the arbiter of Greece’s fate. Yes, he should have adopted a more conciliatory style and shown greater appreciation for the norms of European negotiations; and, yes, he overestimated Greece’s bargaining power, wrongly assuming that pressing the threat of Grexit would compel his European partners to reconsider their long-entrenched positions. But, relative to the macro situation, these are minor issues.

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Another thing I said days ago. Surprise me, tell me something new. Alternatively: read me.

Yanis Varoufakis Is Being Pilloried For Doing What Had To Be Done (Legrain)

Yanis Varoufakis has few friends in official circles these days. Greece’s outspoken former finance minister has long been loathed by his erstwhile eurozone counterparts, on whom he counterproductively impressed their mediocrity. Since he has been jettisoned by his prime minister, Alexis Tsipras, and criticised Greece’s capitulation to Germany’s iniquitous demands, his former Syriza colleagues are losing patience with him too. He is becoming the perfect fall guy for having devised a daring escape plan in the event that Greece’s creditors shut down its banking system and severed its international economic ties – as they eventually did. While Varoufakis’s plan to create a parallel payments system based on the country’s tax register was certainly unorthodox, it was completely understandable.

Until the recent revelations, Varoufakis was being criticised for standing up to Greece’s eurozone creditors without preparing a Plan B in case negotiations failed. As many experts and commentators, including me, advised, the Greek government needed to prepare for a parallel currency to provide liquidity to the economy in case eurozone authorities turned off the taps. That way it could credibly threaten to default on its debts while remaining in the eurozone – and thus, it hoped, convince its creditors to offer the debt relief that the depressed Greek economy desperately needed to recover.

But now it turns out Varoufakis did have a plan B, he is being attacked for that too. Some criticise the supposed recklessness and duplicity of preparing for a parallel currency that could have become a new drachma, given the government’s official commitment to staying in the euro. But that is disingenuous. Governments should and do prepare for all sorts of eventualities. The Bank of England is right to prepare for the possibility of Brexit, which may happen even though it is not government policy. One hopes that Whitehall has plans for dealing with a nuclear winter or a catastrophic epidemic. Varoufakis was right to prepare for how to cope with an outcome that wasn’t just possible, but likely.

Others object that the plan wouldn’t have worked. But why not? In principle, the idea of setting up a parallel payments system involving people’s tax numbers is ingenious. Since the value of the parallel currency would derive from the fact that the Greek government accepted it as payment for overdue, current and future taxes, it makes a lot of sense. Given that it takes time to print and distribute banknotes, starting with a purely electronic system is also sensible.

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Part of why the tapes were leaked?!

After Greece, Everyone Will Want A Plan B To Leave The Euro (MarketWatch)

Surely now every finance minister in Europe is going to be continually asked whether they, like the Greeks, have put in place a contingency plan for an alternative currency. It will be a very hard question to answer. If they say no, then they look irresponsible — after all, one of the key tasks of any government is to prepare for all kinds of terrible things that might happen. If they say yes, however, then they undermine their membership in the single currency. It is lose-lose — but that does not mean it is not going to happen. The Irish? They will certainly be expected to have a plan in place, given the underlying strength of their economy, and what happened to them last time around. The Spanish? With the rise of their own anti-austerity parties, they will certainly need to prepare for all eventualities.

The same is true of the Italians and the Portuguese. Once the questions start, they will be impossible to stop. The trouble is, that is now how a currency is mean to work. No one ever asks the governor of Virginia what plans he has put in place should the state decide to pull out of the dollar. No one asks the leader of Manchester Council whether they have prepared for leaving the sterling zone, or the leaders of Osaka whether they might replace the yen. It would be like asking whether they planned to colonize Mars — – the question would be too far-fetched to even be put. It simply wouldn’t happen. That is because properly functioning currency systems are permanent.

The Greeks and the German have changed that. Varoufakis’s legacy is, in truth, a reversible euro. A country might be a member, but only for the moment, and only so long as it works. It will always have a Plan B stored away somewhere, just in case. And yet, that is not a currency. It is fixed-exchange-rate system. The problem is that fixed-currency systems don’t often survive an economic shock. The euro is staggering on for now. But the chances of it surviving the next big wave or turmoil in the markets have just been dramatically reduced.

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Hilarious in its tragedy.

Bulgaria, Greece’s New Treasury (Novinite)

A short trip to Bulgaria is the only thing Greeks have to do to circumvent capital controls, German weekly Der Spiegel says. “Strict controls which actually had to save Greece’s banks from collapse, are leading to a mass exodus to the poorest EU member state,” it reports in a Tuesday article. Up to €14,000 are successfully transferred to Bulgaria every week despite capital controls. Something not only “normal citizens” do (with thousands having opened bank accounts there), but also companies which open branch offices or move their headquarters to the country, Der Spiegel argues. This is partly owned to the fact that one is allowed to have €2000 daily (or €14,000 weekly) transferred from their account for a trip abroad.

A bank employee in Bulgaria is quoted as saying that for Greek citizens it is quite easy to have accounts set up in her bank in either leva (the Bulgarian currency, BGN) or euro – all it takes is an ID document and wait for two hours. “We have many foreign clients. Of course, Greeks too,” she told the author of the article. Greeks are fearing that a return to the drachma might cost much of their wealth. “In the months when Greece’s crisis peaked they have withdrawn around EUR 45 B from their bank accounts. Now they are bringing the money abroad.” For companies, low corporate and personal taxes in Bulgaria turn out attractive, being at 10% compared to Greece’s 29% of corporate tax. The latter rate was introduced to comply with the demands of international lenders.

Lower minimum wage and levels of red tape add to Bulgaria’s appeal, and Greek entrepreneurs are able to set up a Bulgaria-based subsidiary normally in just a week. As a result, there were 11 500 entities with Greek participation in Bulgaria, 2500 more than the year before. Krasen Stanchev, an economist with the Institute for Market Economy, is quoted as saying that some EUR 4.5-5 B have been invested by Greek companies into Bulgaria since the crisis began. “Until a few years ago Greece was still a beacon of hope and a role model for other countries in the Balkans. We were a developed economy, integrated into the West, part of the center of Europe… Now even Albania looks more attractive,” an entrepreneur is quoted as saying.

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Something tells me the Greeks will come out of this in good shape.

Hay For Cheese? Barter Booms in Cash-Squeezed Rural Greece (Reuters)

Panagiotis Koutras, a cattle herder and farmer, recalls how he sold clover for animal feed worth 2,000 euros to a farmer who did not have cash and paid him in wheat. Another farmer offered his heavy equipment to cover €4,000 of a €6,000 bill for products Koutras had supplied him. Kostas Zavlagas, who produces cotton, wheat, and clover recounted how he gave bales of hay and machine parts to another farmer who did not have cash to pay him. “He is going to pay me back in some sort of product when he is able to, maybe in cheese,” says 47-year-old Zavlagas. “It’s representative of the daily issues that farmers face and why they turn to barter trading to resolve them.”

Still, for the country’s tax inspectors, the practice raises questions about whether it is fuelling endemic tax dodging since it is difficult to monitor whether receipts are issued to ensure value-added-tax is paid. “Barter is not illegal as long as the relevant legal documents are issued for every transaction,” said Christos Kyriazopoulos, research director at the finance ministry’s anti-corruption unit. “But we are closely monitoring the phenomenon, it’s something that we have our eyes on.” Many Greeks are reluctant to encourage the use of barter or to talk about it openly, fearing it symbolizes a society moving in reverse after seven years of economic crisis.

“Of course, a barter economy is something that we shouldn’t aspire to and should be a thing of the past – the last time we had it on a large scale was when we were under occupation,” says Stamatis of the Mermix platform, referring to Nazi German rule during World War Two. “But aren’t capital controls a financial form of occupation?”

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“The IMF is part of the so-called “quadriga” of bailout monitors that also includes the EC, the ECB and, for the first time, the European Stability Mechanism, the EU’s own bailout fund.”

Tsipras Faces New Challenge From Syriza Hardliners Over Greek Bailout (FT)

Alexis Tsipras will on Thursday face an unprecedented challenge to his authority, as the central committee of his governing Syriza party meets to discuss the prime minister’s plan to hold a snap election as soon as Greece signs up to a €86bn third bailout. After abandoning its earlier vows of unity, Left Platform, an anti-bailout faction of the party led by Panayotis Lafazanis, the former energy minister, appeared to be preparing for a showdown that could split Syriza and deprive Mr Tsipras of his parliamentary majority. The development was a reminder of the threats facing Greece’s prime minister as he tries to finalise a bailout deal with international creditors that is deeply unpopular within his own leftwing party.

Mr Tsipras has so far succeeded at winning parliamentary support for two packages of reforms connected to the bailout even as he has expressed his own misgivings about them. In the process, he appears to have energised Mr Lafazanis, a former Communist party official who has advocated a return to the drachma. The prime minister is expected to propose an extraordinary party congress for September, provided his government can meet its own tight deadline of August 12 to strike a deal with creditors. The central committee meeting also coincides with the arrival in Athens of Delia Valesescu, the IMF’s new head of mission. The IMF is part of the so-called “quadriga” of bailout monitors that also includes the EC, the ECB and, for the first time, the European Stability Mechanism, the EU’s own bailout fund.

Earlier this week technical experts from the EU and IMF gained access to the national accounting office at the finance ministry for the first time since Syriza came to power in January, reflecting a more accommodating attitude towards the creditors since Yanis Varoufakis, the combative finance minister, stepped down earlier this month. Mr Tsipras’s newfound willingness to negotiate tough economic reforms with the deeply unpopular bailout monitors in order to keep Greece in the euro has left Mr Lafazanis sounding disappointed and increasingly angry.

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Maybe Romanians are good with diktats?

‘Iron Lady’ To Play Central Role In Next Act Of Greek Bailout Drama (Guardian)

Delia Velculescu, the Romanian economist chosen to lead the International Monetary Fund’s negotiating team in Greece, was dubbed the “iron lady” during the fraught talks over Cyprus’s bailout. Given the poor relationship between Athens and its creditors, her toughness will be tested anew in the coming days. Velculescu arrives in Athens on Thursday amid uncertainty over the IMF’s willingness to throw its weight behind a third bailout for the stricken eurozone state. Alexis Tsipras, the Greek prime minister, hopes to negotiate a deal before 20 August, but the IMF will subject any agreement to rigorous examination. The IMF has indicated that it regards Greece’s debt burden as unsustainable, and any new deal must include debt relief.

It is far from clear whether Athens’ eurozone creditors are ready to offer this. Velculescu will have to decide what role the Washington-based lender is willing to play in any new rescue – and what should be expected of Greece in return. Velculescu is not well known in her native Romania, having left for the US to attend university and later joined the IMF. “Inside Romanian financial institutions, she’s known due to her position at the IMF, but among journalists and the general public she is mostly unknown,” said Cristian Pantazi, editor-in-chief of Hotnews, an online Romanian news agency. “People who do know her here characterise her as a very serious and dedicated professional.”

Velculescu holds a masters and PhD in economics from Johns Hopkins University in Maryland, and has been at the IMF since 2002. She co-authored an earlier IMF review of the Greek economy in 2009, and this, coupled with her time in Cyprus as the IMF’s chief representative between 2012 and 2014, has led to her securing a prominent role in trying to resolve the ongoing crisis in Greece. [..] it was the Cyprus bailout in 2013 that made her name. It was the Cypriot media who portrayed Velculescu as an “iron lady” who was very tough and demanding in terms of fiscal consolidation and the requirements she made on the country. However, those who dealt with her during Cyprus’s bailout talks have a different viewpoint.

“She had a reputation for being tough, but I didn’t experience the toughness in my dealings with her,” said Marios Clerides, general manager at the Cooperative Central Bank in Cyprus. “She and the troika came across as resolved rather than aggressive,” he added. “She has quite a negative reputation in Cyprus,” said Alexander Apostolides, an economics historian at the European University Cyprus, who was a presidential adviser during the negotiations. “We are a male-dominated society and the fact that she was a woman caused some issues,” he said, but added that in his experience she was “a person willing to listen to other ideas and alternatives, more ready than others to hear other approaches”.

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Good work. Steve will be able to point out tons of erroneous assumptions in mainstream economics.

Help Make Minsky Easier To Use (Steve Keen)

Minsky has been programmed almost exclusively by Dr Russell Standish, and $10,000 will buy 100 hours of Russell’s programming time. About A$230,000 has been spent on it so far-with US$128,000 coming from an initial INET grant (when the US$ was worth less than the A$), US$78,000 from a Kickstarter campaign, and sundry other amounts from supporters like Bruce Ramsay, who runs the Ending Overlending page that is linked to from this blog. This funding enabled Russell to build the basic functionality Minsky needed, along with a lot of innovative smarts that set it apart from its much more established rivals in system dynamics programs like Matlab’s Simulink, Vensim, Stella and Vissim that cost thousands of dollars a copy and have been around for decades.

For example, Minsky is the only system dynamics program that lets you use Greek characters and symbols, superscripts and subscripts; it runs plots dynamically while a simulation is running (which only Vissim also does in the system dynamics product space), it s the only program that lets you insert variables and operators by typing directly onto the canvas rather than having to use the mouse and toolbox palettes; and of course it s the only program that supports double-entry bookkeeping to allow complex inter-related financial accounts to be simulated dynamically. But the program is still incomplete.

Some basic things like an IF/THEN/ELSE block are missing; some aspects of grouping don’t work properly yet, you can’t save part of a Minsky file as a toolkit, and so on. I’m putting $10,000 of my own cash in to get these things done now and there are many other features that should be added. These range from simple things like adding shortcut keys for Save As to the final ambitions I have for the program enabling it to model multiple sectors and multiple economies at once. If we can raise another $30,000 or so, we can also address one of the main complaints that I hear about Minsky: to quote my good friend Tom Ferguson, INET’s Research Director, from our dinner together in London last month, “Why is Minsky so hard to use?”

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Crack down on the poor.

Spain Thinks Its Workers Are Not Really As Unemployed As They Say (Economist)

He had the dishevelled air of a bon vivant, someone who enjoyed his food and cared little for appearances. When he showed up in the tiny hillside village of Gaucin at the beginning of the year, driving an old car and asking for directions, no one knew who he was, or cared. But he eased into village life, gossiping with the locals in the bars, mostly about who owned what in the area. He had done his homework on Owners Direct and Airbnb, two home-rental websites, and had a list of a hundred houses that were being rented out to holidaymakers. Next he began asking about villagers who were working part-time for cash as cleaners, gardeners or handymen, some of them officially claiming to be unemployed. Soon the word spread: the taxman had come to town.

The inspectors have come to villages like Gaucin to tackle the Spanish government’s difficulties in collecting revenue, in the face of economic problems that have driven much of the country’s business activity into the shadows. Spain’s economy has been growing lately, creating 411,000 net jobs in the second quarter according to figures released on July 23rd by the national statistics agency. But while unemployment fell 1.4 %age points, it is still an agonising 22.4%, having remained above 20% for five years. As elsewhere in southern Europe, this prolonged stagnation has encouraged workers and businesses to dodge taxes by shifting to the black market.

While northern European countries now promote electronic transactions, shopkeepers and housecleaners in Spain are happy to accept cash in order to dodge value-added tax of 21%. The grey economy is estimated to make up between a fifth and a quarter of Spain’s GDP. The government’s tax crackdown has netted almost €35 billion extra for the state’s coffers in the past three years. But the tax agency (or Agencia Tributaria) sees scope to improve that take. It plans to step up surveillance of social media and e-commerce sites, as well as of businesses such as hotels and restaurants which it suspects of keeping two sets of accounts to under-report income. Members of the public are encouraged to blow the whistle, and to report any payments of €2,500 or more in cash. Tax inspectors are offered financial incentives to meet ambitious targets.

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Go Nigel go.

Nigel Farage On EU Referendum And The Mess In Dover-Calais (BBCBreakfast)

UKIPs Nigel Farage on the EU referendum campaign, and moving it forward as all the other Eurosceptics are lazy bastards, and the immigration mess on Dover-Calais route with illegal immigrants smuggling themselves onto Eurotunnel trains.

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Jul 252015
 
 July 25, 2015  Posted by at 9:09 am Finance Tagged with: , , , , , , ,  5 Responses »
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Harris&Ewing Calvin Coolidge Inaugural Ball. March 4, Washington DC 1925

Emerging Market Currencies Fall to Record Low in ‘Violent’ Selloff (Bloomberg)
Emerging Market Currencies Crash On Fed Fears And China Slump (AEP)
China’s Global Ambitions, With Loans and Strings Attached (NY Times)
How China Can Create the $68 Trillion Consumer Economy (Bloomberg)
The Eurasian Big Bang – China, Russia Run Rings Around Washington (Pepe Escobar)
How Tsipras and Syriza Outmaneuvered Merkel and the Eurocrats (Slavoj Zizek)
Europe’s Civil War (Slaughter)
Greek Bonds To Resume Trading As Luxembourg Exchange Lifts Ban (Bloomberg)
Open Letter to Yanis Varoufakis & Dominique Strauss-Khan (Tremonti & Savona)
Syriza’s Covert Plot During Crisis Talks To Return To Drachma (FT)
Greek Debt Crisis Talks Stall Over Choice Of Hotel, Security Issues (Guardian)
The Great Greece Fire Sale (Guardian)
Greece Loosens Capital Restrictions On Businesses (Reuters)
The Rift Between France And Germany Can’t Be Papered Over Anymore (MarketWatch)
Upcoming French Vote Could Send Shock Waves Across Europe (MarketWatch)
The Euro Is Driving Finland To Depression (AdamSmith.org)
US, EU Battle Over ‘Feta’ In Trade Talks (Reuters)
Facing The Future At The International Monetary Fund (BBC)
Pearson In Talks To Sell The Economist Too (Politico)

USD=safe haven.

Emerging Market Currencies Fall to Record Low in ‘Violent’ Selloff (Bloomberg)

Emerging-market currencies are in free fall. An index of the major developing-nation currencies fell to an all-time low this week, extending its drop over the past year to 19%, according to data compiled by Bloomberg going back to 1999. The Russian ruble, Colombia’s peso and the Brazilian real have fallen more than 30% over the past year for some of the worst global selloffs. China’s economic slowdown is pushing down commodity prices, weighing on raw-material exporters from Brazil to Mexico and South Africa. Adding to the pain is the expectation that the Federal Reserve will soon embark on the first interest rate increase since 2006, threatening to lure capital away from developing nations.

“This combination of a soft landing in China and a Fed that will normalize rates soon poses significant risks to emerging markets, especially their currencies,” Stephen Jen, a former IMF economist who is now managing partner at SLJ Macro Partners in London, wrote in a July 23 note. Jen said he expects “a violent sell-off in some emerging-market currencies in the second half this year.” While currency depreciation tends to spur growth by making exports cheaper, so far this is not happening because global trade has stalled, according to Citigroup and UBS. The IMF forecasts emerging markets will grow 4.2% this year, the slowest since 2009.

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Once again: USD=safe haven.

Emerging Market Currencies Crash On Fed Fears And China Slump (AEP)

The currencies of Brazil, Mexico, South Africa and Turkey have all crashed to multi-year lows as investors flee emerging markets and commodity prices crumble. The drastic moves came as fears of imminent monetary tightening by the US Federal Reserve combined with shockingly weak figures from China, which stoked fears that the country may be sliding into a deeper downturn and sent tremors through East Asia, Latin America and Africa. The Caixin/Markit manufacturing survey for China fell to a 15-month low of 48.2 in July, with a sharp drop in new export orders. Danske Bank said the slide “pours cold water” on hopes of a quick recovery from the slump seen earlier this year. Brazil’s real plummeted to a 12-year low of 3.34 to the dollar, reflecting the country’s heavy reliance on exports of iron ore and other raw materials to China.

The devaluation tightens the noose on Brazilian companies saddled with $188bn in dollar debt taken out during the glory days of the commodity boom. The oil group Petrobras alone raised $52bn on the US bond markets. Mexico’s peso hit a record low of 16.24 against the dollar. The country’s foreign exchange commission is mulling emergency action to defend the currency, despite the extreme reluctance of the Mexican authorities to meddle with market forces. Colombia’s peso collapsed 5.2pc to a historic low on Friday, a huge move in a single day. Similar dramas played out in Chile and a string of countries deemed vulnerable to the combined spill-overs from China and the US. The MSCI index of emerging market equities fell to 1.8pc to 36.92 and may soon test four-year lows.

Bernd Berg, from Societe Generale, said Brazil faces a “perfect storm” as the economy slides into deeper recession and corruption scandals spread. New worries about political risk may soon push the real to 3.60, a once unthinkable level.There is mounting concern that President Dilma Rousseff could be impeached for her failure to stop pervasive malfeasance at Petrobras. Brazil’s travails come just as the US nears full employment and the Fed prepares to raise interest rates for the first time in eight years. issuing what amounts to a “margin call” for emerging markets that have borrowed $4.5 trillion in dollars. Mr Berg said Brazil’s debt may be cut to junk status over coming months. This would be a humiliating blow for a country that thought it had escaped the endless cycle of debt booms and populist misrule, and saw itself as a pillar of a new BRICS-led global order.

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How much longer will the yuan be a credible currency though?

China’s Global Ambitions, With Loans and Strings Attached (NY Times)

Where the Andean foothills dip into the Amazon jungle, nearly 1,000 Chinese engineers and workers have been pouring concrete for a dam and a 15-mile underground tunnel. The $2.2 billion project will feed river water to eight giant Chinese turbines designed to produce enough electricity to light more than a third of Ecuador. Near the port of Manta on the Pacific Ocean, Chinese banks are in talks to lend $7 billion for the construction of an oil refinery, which could make Ecuador a global player in gasoline, diesel and other petroleum products. Across the country in villages and towns, Chinese money is going to build roads, highways, bridges, hospitals, even a network of surveillance cameras stretching to the Galápagos Islands.

State-owned Chinese banks have already put nearly $11 billion into the country, and the Ecuadorean government is asking for more. Ecuador, with just 16 million people, has little presence on the global stage. But China’s rapidly expanding footprint here speaks volumes about the changing world order, as Beijing surges forward and Washington gradually loses ground. While China has been important to the world economy for decades, the country is now wielding its financial heft with the confidence and purpose of a global superpower. With the center of financial gravity shifting, China is aggressively asserting its economic clout to win diplomatic allies, invest its vast wealth, promote its currency and secure much-needed natural resources.

It represents a new phase in China’s evolution. As the country’s wealth has swelled and its needs have evolved, President Xi Jinping and the rest of the leadership have pushed to extend China’s reach on a global scale. China’s currency, the renminbi, is expected to be anointed soon as a global reserve currency, putting it in an elite category with the dollar, the euro, the pound and the yen. China’s state-owned development bank has surpassed the World Bank in international lending. And its effort to create an internationally funded institution to finance transportation and other infrastructure has drawn the support of 57 countries, including several of the United States’ closest allies, despite opposition from the Obama administration.

Even the current stock market slump is unlikely to shake the country’s resolve. China has nearly $4 trillion in foreign currency reserves, which it is determined to invest overseas to earn a profit and exert its influence. China’s growing economic power coincides with an increasingly assertive foreign policy. It is building aircraft carriers, nuclear submarines and stealth jets. In a contested sea, China is turning reefs and atolls near the southern Philippines into artificial islands, with at least one airstrip able to handle the largest military planes. The United States has challenged the move, conducting surveillance flights in the area and discussing plans to send warships.

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Just plain dumb.

How China Can Create the $68 Trillion Consumer Economy (Bloomberg)

You’ve heard of Made in China. Get ready for Sold in China. For decades, China has exported cheap goods to the rest of the world even while domestic consumption waned. Now, the country’s shoppers could be set for a reboot. If the government delivers on its promise to transform the economy by encouraging spending on the high street, China’s consumer base has the potential to hit $67 trillion over the next decade, according to The Demand Institute, a think tank jointly run by The Conference Board and Nielsen. Global interest in Chinese shoppers is already high. Music doyenne Taylor Swift has teamed up with JD.com Inc., the second-largest e-commerce company in China, to sell a new fashion line designed specifically for Chinese shoppers.

At the movies, ticket sales are surging, with first-half box office revenue this year rising to 20 billion yuan ($3.2 billion), compared with just 4 billion yuan in all of 2008. The hard economic data are also showing a shift, albeit slowly. Consumption in China contributed 60% to gross domestic product growth in the first half, even as the country grew at its slowest in 25 years. Part of the spending increase is down to a government led push to shift the economy away from debt fueled investment and more toward consumption. But that won’t happen overnight: Consumption’s share of the economy eased to 28% in 2011 from 76% in 1952, according to the Demand Institute. “There are signs that the decline in consumption’s share of GDP may have abated, but it has certainly not yet been reversed,” the report’s lead authors said.

In its analysis, the Demand Institute modeled two scenarios, both based on GDP growth slowing from around 7% to 4% by 2019 where it would stay until 2025. Under the first scenario – which they figure is the most likely – the consumption share of GDP would remain constant at about 28% between 2015 and 2025, with total spending reaching 330 trillion yuan or $53 trillion. In the second case, where consumption reaches 46% of output by 2025, or annual spending rises 126%, consumption would balloon to 420 trillion yuan, or $68 trillion. The analysis is based on the development of 167 countries between 1950 and 2011. Countries with similar underlying fundamentals to China saw consumption remain flat relative to GDP for some time after it stopped falling. If China’s shoppers do take off, it will be from a relatively low base. Using the latest available comparative data from 2011, consumption in China made up 28% of real GDP, according to the report. That compares with 76% in the U.S., 67% in Brazil, 60% in Japan, 59% in Germany, and 52% in India.

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Escobar continually fails to address the Chinese economic slump.

The Eurasian Big Bang – China, Russia Run Rings Around Washington (Pepe Escobar)

Let’s start with the geopolitical Big Bang you know nothing about, the one that occurred just two weeks ago. Here are its results: from now on, any possible future attack on Iran threatened by the Pentagon (in conjunction with NATO) would essentially be an assault on the planning of an interlocking set of organizations – the BRICS nations (Brazil, Russia, India, China, and South Africa), the SCO (Shanghai Cooperation Organization), the EEU (Eurasian Economic Union), the AIIB (the new Chinese-founded Asian Infrastructure Investment Bank), and the NDB (the BRICS’ New Development Bank) – whose acronyms you’re unlikely to recognize either. Still, they represent an emerging new order in Eurasia. Tehran, Beijing, Moscow, Islamabad, and New Delhi have been actively establishing interlocking security guarantees.

They have been simultaneously calling the Atlanticist bluff when it comes to the endless drumbeat of attention given to the flimsy meme of Iran’s “nuclear weapons program.” And a few days before the Vienna nuclear negotiations finally culminated in an agreement, all of this came together at a twin BRICS/SCO summit in Ufa, Russia – a place you’ve undoubtedly never heard of and a meeting that got next to no attention in the U.S. And yet sooner or later, these developments will ensure that the War Party in Washington and assorted neocons (as well as neoliberalcons) already breathing hard over the Iran deal will sweat bullets as their narratives about how the world works crumble.

With the Vienna deal, whose interminable build-up I had the dubious pleasure of following closely, Iranian Foreign Minister Javad Zarif and his diplomatic team have pulled the near-impossible out of an extremely crumpled magician’s hat: an agreement that might actually end sanctions against their country from an asymmetric, largely manufactured conflict. Think of that meeting in Ufa, the capital of Russia’s Bashkortostan, as a preamble to the long-delayed agreement in Vienna. It caught the new dynamics of the Eurasian continent and signaled the future geopolitical Big Bangness of it all. At Ufa, from July 8th to 10th, the 7th BRICS summit and the 15th Shanghai Cooperation Organization summit overlapped just as a possible Vienna deal was devouring one deadline after another.

Consider it a diplomatic masterstroke of Vladmir Putin’s Russia to have merged those two summits with an informal meeting of the Eurasian Economic Union (EEU). Call it a soft power declaration of war against Washington’s imperial logic, one that would highlight the breadth and depth of an evolving Sino-Russian strategic partnership. Putting all those heads of state attending each of the meetings under one roof, Moscow offered a vision of an emerging, coordinated geopolitical structure anchored in Eurasian integration. Thus, the importance of Iran: no matter what happens post-Vienna, Iran will be a vital hub/node/crossroads in Eurasia for this new structure.

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Zizek is an intriguing writer.

How Tsipras and Syriza Outmaneuvered Merkel and the Eurocrats (Slavoj Zizek)

Why this horror? Greeks are now asked to pay a high price, but not for a realist perspective of growth. The price they are asked to pay is for the continuation of the “extend and pretend” fantasy. They are asked to ascend to their actual suffering in order to sustain another’s—the Eurocrats’—dream. Gilles Deleuze said decades ago: “Si vous êtes pris dans le rêve de l’autre, vous êtes foutus” (“If you are caught into another’s dream, you are fucked.” This is the situation in which Greece now finds itself: Greeks are not asked to swallow many bitter pills for a realist plan of economic revival, they are asked to suffer so that others can go on dreaming their dream undisturbed. The one who now needs awakening is not Greece but Europe.

Everyone who is not caught in this dream knows what awaits us if the bailout plan is enacted: another €90 billion or so will be thrown into the Greek basket, raising the Greek debt to €400 or so billions (and most of those billions will quickly return back to Western Europe—the true bailout is the bailout of German and French banks, not of Greece), and we can expect the same crisis to explode again in a couple of years. But is such an outcome really a failure? At an immediate level, if one compares the plan with its actual outcome, obviously yes. At a deeper level, however, one cannot avoid a suspicion that the true goal is not to give Greece a chance but to change it into an economically colonized semi-state kept in permanent poverty and dependency, as a warning to others. But at an even deeper level, there is again a failure – not of Greece, but of Europe itself, of the emancipatory core of European legacy.

The “no” of the referendum was undoubtedly a great ethico-political act: against a well-coordinated enemy propaganda spreading fears and lies, with no clear prospect of what lies ahead, against all pragmatic and “realist” odds, the Greek people heroically rejected the brutal pressure of the EU. The Greek “no” was an authentic gesture of freedom and autonomy. The big question is, of course, what happens the day after, when we have to return from the ecstatic negation to the everyday dirty business? And here, another unity emerged, the unity of the “pragmatic” forces (Syriza and the big opposition parties) against the Syriza Left and Golden Dawn. But does this mean that the long struggle of Syriza was in vain, that the “no” of the referendum was just a sentimental empty gesture destined to make the capitulation more palpable?

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“The Greeks, for their part, have been putting their national identity ahead of their pocketbooks, in ways that economists do not understand and continually fail to predict. ”

Europe’s Civil War (Slaughter)

The negotiations leading up to the latest tentative deal on Greece’s debt brought into relief two competing visions of the European Union: the flexible, humane, and political union espoused by France, and the legalistic and economy-focused union promoted by Germany. As François Heisbourg recently wrote, “By openly contemplating the forced secession of Greece [from the eurozone], Germany has demonstrated that economics trumps political and strategic considerations. France views the order of factors differently.” The question now is which vision will prevail? The Greeks, for their part, have been putting their national identity ahead of their pocketbooks, in ways that economists do not understand and continually fail to predict.

It is economically irrational for Greeks to prefer continued membership in the eurozone, when they could remain in the EU with a restored national currency that they could devalue. But, for the Greeks, eurozone membership does not mean only that they can use the common currency. It places their country on a par with Italy, Spain, France, and Germany, as a “full member” of Europe – a position consistent with Greece’s status as the birthplace of Western civilization. Whereas that stance reflects the vision of an “ever-closer union” that motivated the EU’s founders, Germany’s narrower, economic understanding of European integration cannot inspire ordinary citizens to support the compromises necessary to keep the EU together. Nor can it withstand the inevitable attacks directed against EU institutions for every action and regulation that citizens dislike and for which national politicians want to avoid responsibility.

The original European Economic Community, created by the Treaty of Rome in 1957, was, as the name indicates, economic in nature. The Treaty itself was hard-headed, grounded in the converging economic interests of France and Germany, with the Benelux countries and Italy rounding out the basis of a new European economy. But economic integration was underpinned by a vision of peace and prosperity for Europe’s peoples, after centuries of unprecedented violence had culminated in two world wars that reinforced the seemingly eternal enmity between France and Germany. And, indeed, the language of a larger political union was embedded in Europe’s treaties, to be interpreted by the European Court of Justice and subsequent generations of European decision-makers in ways that supported the construction of a common European polity and identity, as well as a unified economy.

My mother, a young Belgian in the 1950s, remembers the idealism and the excitement of the European federalist movement, with its promise that her generation could create a different future for Europe and the world. To be sure, the vision of a United States of Europe, espoused by many of those early federalists, looked backward to the founding of the US, rather than forward to a distinctive European venture. Nonetheless, the EU that emerged – which pools sovereignty sufficiently to benefit from being a powerful regional entity in a world of almost 200 countries while maintaining its members’ distinct languages and cultures – is something new.

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At what rates, though?

Greek Bonds To Resume Trading As Luxembourg Exchange Lifts Ban (Bloomberg)

The Luxembourg Bourse said it authorized a resumption of trading Greek bonds on Friday. The exchange lifted a suspension on trading securities issued by 25 Greek entities, from government bonds to those of Alpha Bank SA and Hellenic Telecommunications Organization SA, according to a statement. Trading was halted at the end of June as the Greek government shuttered its financial markets. The nation’s banks reopened on July 20, though limits on withdrawals are only being eased gradually and officials said they will extend the shutdown of its stock and bond markets at least through Monday. Greek bond trading was scant even before the suspension, with the central bank’s electronic secondary securities market, or HDAT, recording no turnover on the government’s notes in June, according to Athens News Agency.

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Nice headline, not enough substance.

Open Letter to Yanis Varoufakis & Dominique Strauss-Khan (Tremonti & Savona)

Dear Yanis, dear Dominique: There is a place on earth that represents Europe’s very roots: Greece. Let us begin there. Athens, April 28, 1955. Albert Camus’ conference on “The future of Europe”.[1] On this occasion, participants agreed that the structural characteristics of European civilization are essentially two: the dignity of the individual; a spirit of critique. At that time (1955), human dignity was a focus of much debate in Europe. Nobody doubted, however, the European “spirit of critique”. There were no doubts about the rationalist, Cartesian, Enlightened vision, which was agent and engine of continuous progress on the continent, as much in terms of technical-scientific domination as for political, social and economic domination.

Today, more than half a century later, we might well invert these two: human dignity is widely appreciated throughout Europe, albeit challenged by dramatic problems generated by immigration; it is the force of reason in Europe that no longer underlies continuous progress. Why is this so? What happened? It was not some shadowy curse that descended upon the continent. It was not some evil hand that sowed our fields with salt. So what did happen? Just as the dinosaurs died off because an asteroid slammed into the planet, so was dinosaur Europe struck by 4 different phenomena. Each was revolutionary even when taken alone, but all together, one after another, they proved enough to cause an explosion, an implosion, paralysis: enlargement, globalization, the euro, the crisis.

And that is not all. During the process of political union, we took a wrong turn at one point. We failed to unite that which could be and needed to be united (such as defense). Instead, we united that which did not need to be united (for example, the size of vegetables). This is why, in Europe today, it is not “more union” that we need. What we need is to propose, discuss and design new “articles of confederation”. Dear Yanis, dear Dominique, we agree on the fact that life and civilization cannot be reduced to mere calculations of interest rates; we agree that today, in Europe, it is not the technicalities that need changing but the political vision. History teaches us that in order to reach our goal we must change what is inside people’s heads or – at the very least – admit that mistakes have been made. We agree that the piazzas of protest are to be avoided, but that we must find a new road, down which we can all walk, regardless of our country or political party of origin.

Paolo Savona, Emeritus professor of Political economy
Giulio Tremonti, Senator of the Italian Republic

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Some doubtful claims being made here, but an interesting insight. Let’s first see what Syriza has to say about it, though.

Syriza’s Covert Plot During Crisis Talks To Return To Drachma (FT)

Arresting the central bank’s governor. Emptying its vaults. Appealing to Moscow for help. These were the elements of a covert plan to return Greece to the drachma hatched by members of the Left Platform faction of Greece’s governing Syriza party. They were discussed at a July 14 meeting at the Oscar Hotel in a shabby downtown district of Athens following an EU summit that saw Greece cave to its creditors, leaving many in the party feeling despondent and desperate. The plans have come to light through interviews with participants in the meeting as well as senior Greek officials and sympathetic journalists who were waiting outside the gathering and briefed on the talks.

They offer a sense of the chaos and behind-the-scenes manoeuvring as Greece nearly crashed out of the single currency before prime minister Alexis Tsipras agreed to the outlines of an €86bn bailout at the EU summit. With that deal still to be finalised, they are also a reminder of the determination of a sizeable swath of Mr Tsipras’ leftwing party to return the country to the drachma and increase state control of the economy. Chief among them is Panayotis Lafazanis, the former energy and environment minister and leader of Syriza’s Left Platform, which unites a diverse group of far left activists — from supporters of the late Venezuelan president Hugo Chávez to old-fashioned communists. He was eventually sacked in a cabinet reshuffle after voting against reforms tied to the bailout.

“Obviously it was a moment of high tension,” a Syriza activist said, describing the atmosphere as the meeting opened. “But you were also aware of a real revolutionary spirit in the room.” Yet even hardline communists were taken aback when Mr Lafazanis proposed that the Syriza government should seize control of the Nomismatokopeion, the Greek mint, where the bulk of the country’s cash reserves are kept. “Our plan is that we go for a national currency. This is what we should have done already. But we can do it now,” he said, according to people present at the meeting. Mr Lafazanis said the reserves, which he claimed amounted to €22bn, would pay for pensions and public sector wages and also keep Greece supplied with food and fuel while preparations were made for launching a new drachma.

Meanwhile, the central bank would immediately lose its independence and be placed under government control. Its governor, Yannis Stournaras, would be arrested if, as expected, he opposed the move. “For people planning a conspiracy to undermine the Greek state, they were pretty open about it,” said one reporter who staked out the event. The plan demonstrates the apparently ruthless determination of Syriza’s far leftists to pursue their political aims — but also their lack of awareness of the workings of the eurozone financial system. For one thing, the vaults at the Nomismatokopeion currently hold only about €10bn of cash — enough to keep the country afloat for only a few weeks but not the estimated six to eight months required to prepare, test and launch a new currency.

The Syriza government would have quickly found the country’s stash of banknotes unusable. Nor would they be able to print more €10 and €20 banknotes: From the moment the government took over the mint, the ECB would declare Greek euros as counterfeit, “putting anyone who tried to buy something with them at risk of being arrested for forgery,” said a senior central bank official. “The consequences would be disastrous. Greece would be isolated from the international financial system with its banks unable to function and its euros worthless,” the official added. As the details of the Left Platform meeting have leaked out, some political opponents are demanding an accounting.

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Permit me a chuckle.

Greek Debt Crisis Talks Stall Over Choice Of Hotel, Security Issues (Guardian)

In an inauspicious start to talks over awarding Greece a third bailout, international officials have postponed the negotiations after failing to agree with their hosts where they will stay and how they will operate when in Athens. Mission chiefs representing the troika of creditors – the European commission, European Central Bank and International Monetary Fund – were forced to delay discussions over the €86bn (£61bn) programme after it emerged they had been unable to agree on a secure venue in the capital. “There are some logistical issues to solve, notably security-wise,” said a European commission official. “Several options are on the table.”

The leftwing government in Athens, which had previously vowed to never let the auditors step foot in Greece again, is understood to be irritated by demands that the creditor team is given free access to ministries and files. Acutely aware of the anger the monitors have triggered in the past, due to the austerity measures attached to previous bailouts, it has insisted the mission heads stay in a hotel outside the Greek capital. “A lot of trust has been lost and the big issue is who they are going to see, what ministries they are going to be let into, what files are going to be made available,” said Anna Asimakopoulou, a shadow finance minister with the main opposition New Democracy party. “That, of course, will be a big defeat for the government given that negotiations have moved to Brussels for the past six months but that is what they want, due diligence at a deeper level. Holding talks in a hotel is just not practical.”

Symbolically, the inspectors’ return is humiliating for Prime Minister Alexis Tsipras who won power in January promising to dismantle the troika. The European commission wants a deal to be reached on a bailout programme by the second half of August when Greece must honour a €3.4bn debt repayment to the ECB. But with the talks also expected to be extremely tough there are few who believe that deadline will be met. Instead EU officials have signalled the debt-stricken country will likely be given a bridging loan – as it was earlier this week – to avert default. “It is difficult to envisage these negotiations ending before early September at the earliest,” said Asimalopoulou, the shadow finance minister.

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Dead in the water.

The Great Greece Fire Sale (Guardian)

While Tsipras has been forced into a humiliating climbdown over the sale of state assets, he has repeatedly branded the entire bailout plan as a bad deal that he doesn’t believe in. Unions with ties to the governing party have already vowed to “wage war” to stop the sale of docks in Piraeus, where the Chinese conglomerate, Cosco, currently manages three piers. With the debt-stricken country on its knees, officials have stressed that the prime minister will fight to ensure the denationalisations are not seen as a fire sale. However, independent observers fear just that. “Privatisation in Greece right now means a fire sale,” political economist Jens Bastian said.

Bastian was one of the officials responsible for privatisation under the European commission’s Taskforce for Greece, a body of experts distinct from the troika. He thinks it was a “political mistake” to set a target to raise €50bn from asset sales, in the absence of support from Greek politicians across the political spectrum, from the centre-right New Democracy party, to Pasok on the centre-left and Syriza on the left. “We have never had a political majority to embrace the idea of privatisation. How are you going to create the political momentum that has been absent in the past years under more difficult conditions today?” he asks. Greece’s creditors share such scepticism. Their answer is tighter controls. The privatisation fund will be managed by Greeks under the close watch of creditors.

The privatisation fund has few precedents, although it has been compared to the Treuhandanstalt, the German agency created in the dying days of the GDR to privatise East German assets shortly before reunification. Greece’s former finance minister, Yanis Varoufakis, was one of the first to draw the parallel, although others offer the comparison unprompted. Peter Doyle, a former IMF economist, says the Treuhand offers the closest parallels: the agency had full control over government ministries to sell assets quickly. “The principal task was to sell these things to somebody for cash.”

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Big relief for the entire economy. Hospitals, zoos, tourist industry, anywhere there’s a need for money transfers.

Greece Loosens Capital Restrictions On Businesses (Reuters)

Greece started loosening restrictions on foreign transfers by businesses on Friday, unblocking imports held up after the country introduced capital controls last month. “The daily limit (on money transfers) has been raised to 100,000 euros from 50,000 euros,” central bank governor Yannis Stournaras told reporters, adding that this covered almost 70% of requests. Greek businesses have been hit by limits on transferring money abroad to pay for imports of raw material and other items since capital controls started on June 29, and have had to apply to a special committee for permission to pay their foreign suppliers, a time-consuming process. Stournaras said conditions for businesses were improving and authorities aimed to resolve pending issues in the next 10 days.

“As far as approvals are concerned, we are now very close to the monthly imports the Greek economy was registering before the crisis,” he said after meeting business leaders on Friday. Greece reopened its banks on Monday after it secured a €7.2 billion bridging loan to pay its debt obligations and enacted tough reforms demanded by its lenders to start negotiations on a third bailout. The banks’ three-weeks shutdown has cost Greek businesses €3 billion, said the head of Athens Chamber of Commerce and Industry Constantinos Michalos, with many firms warning of closures as a result of the capital curbs. Greece has approved requests for money transfers totaling €1.585 billion from June 29 to July 23, much of it earmarked for energy imports, according to the Bank of Greece on Friday.

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But its economy says that France can be made to kowtow.

The Rift Between France And Germany Can’t Be Papered Over Anymore (MarketWatch)

A “temporary” Greek exit from economic and monetary union, proposed by Germany, supported by many German-leaning euro members, yet hotly opposed by France and Italy, was narrowly averted in the marathon negotiations that ended on July 13. But the suggestion may still eventually decide Greece’s fate in the euro. The divergence between the two countries traditionally seen as the motor of the European Union demonstrates new fragility in Franco-German relations that looks likely to cast a shadow over European cooperation for some time to come. Wolfgang Schaeuble, the German FinMin, whose hard line on Greece ended up determining Angela Merkel’s negotiating stance, has made clear in the week since the ill-tempered European summit on Greece that he still favors a Greek exit from the euro .

Once it would have feared European isolation, but Germany now puts forward views opposed by France with demonstrative self-confidence. This reflects not only manifest German economic strength but also EMU membership by several smaller nations from central and eastern Europe that take an even more robust attitude than Germany on the Greek economy. From the Baltic to former Yugoslavia, small euro states that were previously part of the Eastern bloc have been converted to German allies and steadfast proponents of monetary orthodoxy. European changes since German reunification 25 years ago represent a double blow for France. The Germans used to be France’s buffer zone against the Soviet Union.

Yet as the new round of EMU antagonism shows, a cluster of small ex-communist countries now play a similar role – but now as buffer states to protect Germany against France. We shall see reinforced efforts in coming months by French President François Hollande and Italian Prime Minister Matteo Renzi to build a European coalition opposing German-style austerity — an alliance that could find support (depending on economic and political developments) in Madrid and Lisbon. The problem for Hollande is the same one that faces Sigmar Gabriel, the German Social Democrat leader and deputy chancellor in Merkel’s coalition. Full-blooded efforts to resist the Merkel-Schaeuble line on Greece, and downgrade efforts at economic discipline or supply-side reforms, are likely to generate strong countervailing pressures.

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Nothing new.

Upcoming French Vote Could Send Shock Waves Across Europe (MarketWatch)

Much has been made of the rift between Germany and France over how the European Union has handled the Greek crisis, with Berlin maintaining a hard line on debt and austerity and Paris, belatedly, calling for a more flexible approach. [..] it is the partnership of equals between these two countries that has driven European integration. The problem is that France has fallen into a political malaise with a series of weak leaders and a disenchantment with politicians as a whole. This malaise results largely from prolonged economic doldrums — stagnant growth, persistent high unemployment — as France tries to conform to the fiscal strictures dictated by Germany’s narrow view of economics and enshrined in the treaty terms for monetary union.

French President François Hollande and his prime minister, Manuel Valls, have abandoned the campaign pledges to foster growth that brought them to power and instead are trying to make France more like Germany. To call the results disappointing would be an understatement. The political backlash creates an opening for the anti-euro, anti-EU National Front under Marine Le Pen, who continues to surge in polls as a leading contender for president in 2017. Le Pen, the daughter of National Front founder Jean-Marie Le Pen, announced this month that she will put her electability to the test this December in regional elections as she heads the party’s campaign in the depressed Nord-Picardy region in northern France.

The elections for governing councils in France’s 13 newly re-constituted regions will provide the broadest test yet of Marine Le Pen’s efforts to soften the National Front’s image and make it more acceptable to mainstream voters. Polls have her winning that election in two rounds of voting, which wouldgive her considerable leverage heading into the presidential campaign. In addition, her niece, Marion Maréchal-Le Pen, the 25-year-old granddaughter of Jean-Marie Le Pen and currently a National Front member of Parliament, is leading the regional election polls in the more prosperous Provence region in southern France.

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Brussels elects to look the other way, but Finland can be the black swan that tears it all apart.

The Euro Is Driving Finland To Depression (AdamSmith.org)

The Finnish economy has been hit by three shocks over the past decade:
• Nokia has more or less disappeared;
• The paper industry is in crisis;
• And recently the Russian crisis has hurt Finland’s economy too.

These have all caused a very significant change in Finland’s current account balance, which over the past 15 years has gone from a sizeable surplus (around 9% of GDP in 2001) to a small deficit (around -1% of GDP in past four years). This would under normal circumstances require a (real) exchange rate depreciation to restore competitiveness. However, as Finland is a member of the euro such adjustment has not been possible through a nominal depreciation of the currency and instead Finland has had to rely on an internal devaluation through lower price and wage growth. However, Finland’s labour market is excessively regulated and non-wage costs are high, which means that the internal devaluation has been very sluggish. As a result growth has suffered significantly.

In fact, Finland’s real GDP level today is around 5% lower than at the onset of the crisis in 2008. This makes the present recession – or rather depression – deeper and longer than the Great Depression in 1930 and the large Finnish banking crisis of the 1990s. Rightly we should call the present crisis Finland’s Greater Depression. ECB policy obviously has not helped. First of all, the 2011 rate hikes from the ECB had a significantly negative impact on Finnish growth. Second, the shocks that have hit the economy are decisively asymmetrical in nature. This means that Finnish growth increasingly has come out of sync with the core Eurozone countries – such as Germany, Belgium and France.

Hence, Finland is a very good example that the eurozone is not an “Optimal Currency Area”, where one monetary policy fits all countries. Concluding, the crisis would likely have been a lot shorter and less deep had Finland had its own currency. This would not have protected Finland from the shocks – Nokia would still have done badly, and exports to Russia would still have been hit by the crisis in the Russian economy, but a currency depreciation would have done a lot to offset these shocks.

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Guess who’ll win?

US, EU Battle Over ‘Feta’ In Trade Talks (Reuters)

EU plans to seal the world’s largest free trade deal with the United States are threatened by intractable differences over food names, none more so than the right of cheese makers to use the term “feta”. Negotiators talk of accelerated progress and hope to thrash out a skeleton agreement on a Transatlantic Trade and Investment Partnership (TTIP) within a year, aiming for a major boost to growth in the advanced Western economies. But geographical indications (GIs), a 1,200-long list ranging from champagne to Parma ham, present a major headache. At the same time as euro zone leaders are ordering Greece to balance its budget and liberalise its product markets, EU trade negotiators are fighting to defend its signature cheese.

GIs are a cornerstone of EU agricultural and trade policy, designed to ensure that only products from a given region can carry a name. To the United States, it smacks of protectionism. “It’s politically extremely important in Europe. As (the EU) phases out direct agricultural support, there has to be a trade-off by promising to do more in trade policy,” said Hosuk Lee-Makiyama, director of the European Centre for International Political Economy. “For 20 years they have been fighting about it at the World Trade Organisation even if the economic value is disputed.” EU member states will have to approve any deal and will need food name protection as compensation for EU farmers facing a flood of U.S. beef and pork imports.

Agriculture is not a sizeable part of either the EU or the U.S. economy, but farmers retain political muscle, as French livestock and dairy producers showed this week by forcing the government to offer aid after protests including road blockades. Washington does not object to protection of niche items such as British Melton Mowbray pork pies. But negotiators face a very difficult task to find a balance for widely produced feta, Parma ham or parmesan, the biggest maker of which is America’s Kraft Foods. The EU introduced GIs and designations of origin in 1992, securing protection for Greek feta, which means “slice”, 10 years later when it declared that non-Greek producers’ use of the term was “fraudulent”.

It is a view echoed by Christina Onassis, marketing manager at the Lytras & Sons dairy in central Greece. She describes the unique plants and microflora of Greece’s mountainous regions and says feta “imitations” mostly use cow’s milk. “For 6,000 years, Greece has produced continuously using milk from ewes and goats,” she said. “We also ripen the cheese for days, which does not happen in any other feta production.”

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Dinosaur fund.

Facing The Future At The International Monetary Fund (BBC)

Maybe it has been the strange twists and turns of the Greek financial crisis that have brought the anomalies of who it is that runs the the IMF into sharper focus – whatever the reason the Fund’s leaders certainly seem concerned. “Our governance needs to be fully modernised to reflect an ever-changing world,” said David Lipton, the IMF’s first deputy managing director – spelling out the problem facing the organisation as he sees it. “If you’re China or a fast-growing country, you need to know that there’ll be a series of changes that enable your role at the IMF to grow,” he told the BBC World Service’s In the Balance programme. Since being set up in 1944 at the Bretton Woods Conference along with the World Bank, the IMF has played a critical and at times controversial role in stabilising the global economy.

It has intervened in national economies with huge loans and often a highly prescriptive set of loan conditions as it did in the 1997 and 1998 East Asian crisis, in Africa throughout the last three decades and most recently in the eurozone in Ireland in 2010, in Portugal in 2011 – and of course, now in Greece. IMF loan agreements usually require severe cut-backs in government spending – austerity with a capital ‘A’ – tax reform, pensions reforms and a crackdown on corruption. The Fund rarely leaves a country with more friends than it had when it arrived. But recently there has the increasingly noisy criticism of the IMF’s pecking order. For many outside the Fund there is the nagging question which comes along with its loans and the calls for countries to reform their economies: “Says who?”

Under the rules agreed when the IMF was established, every IMF managing director must be a European. Currently it is Christine Lagarde – and in fact five of the 11 IMF’s leaders have been French. Meanwhile, the head of the World Bank must be an American, say those same rules. So when unpopular measures are demanded by the IMF in exchange for funding for a country, there is a sense that the West, the world’s richer economies, the ones that have been calling the shots for the last 70 years and are seemingly willing to ignore the rapidly shifting global economic landscape – are still calling the shots. Harvard University’s Prof Kenneth Rogoff, and formerly chief economist at the IMF said: “The number one issue for the IMF, is to dispense with the ridiculous requirement that the managing director be a European, and that the World Bank be run by an American.” “It’s an incredible anachronism.”

Prof Ngaire Woods, an expert in global governance and dean of the Blavatnik school of government, Oxford University, goes further: “I think the risk to the IMF is irrelevance and marginalisation.” “Emerging economies are using other things – anything but rely on the IMF. If you’re sitting in Zambia, Brazil or China, it looks like an organisation that’s still run by the USA and Europe.”

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Dinosaur rag.

Pearson In Talks To Sell The Economist Too (Politico)

Pearson is in advanced talks to sell its 50% stake in the Economist magazine, people familiar with the matter say. The deal would be valued at about £500 million, one of the people said. The prospective buyer of the stake was described as a “diversified, western media company.” The planned deal, which would come on the heels of Pearson’s sale of the Financial Times to Japan’s Nikkei earlier this week, would represent the 171-year-old U.K. group’s latest major divestiture as it seeks to focus on its core education business. The price tag implies a value for the entire Economist Group of £1 billion, a multiple of 17 times the company’s annual operating earnings of £60 million. That’s about half the 35 times the FT’s operating profit that Nikkei agreed to pay Pearson.

But in contrast to that sale, the Economist deal would not offer the buyer a controlling stake. Pearson had hoped to announce the sale concurrently with the FT transaction and its half-year earnings this week, but last minute complications prevented it from doing so, according to a source. Founded in 1843 in London, the weekly “newspaper” as the Economist refers to itself, has long been an influential voice in global journalism, renowned for its sharp, often irreverent analysis of the world stage. Like the FT, the Economist is considered a trophy asset with an influence that outstrips its global circulation of 1.6 million.

The remaining 50% of the Economist not controlled by Pearson is owned by a diverse group of shareholders including Evelyn Robert Adrian de Rothschild, an heir to the banking dynasty and a former chairman of the magazine group. His wife, American-born Lynn Forester de Rothschild, is a member of the Economist’s board. The Rothschild Group, the boutique M&A firm controlled by the family, advised Nikkei on its purchase of the FT. Under a complex shareholder agreement, Pearson would have to obtain the approval of four trustees charged with preserving the magazine’s legacy and independence before transferring any shares to a different owner. That narrows considerably the pool of potential buyers.

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Jul 212015
 
 July 21, 2015  Posted by at 10:05 am Finance Tagged with: , , , , , , , , ,  3 Responses »
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Harris&Ewing The White House kitchen, Washington DC 1909

Greek Banks Face Full Nationalisation (BBC)
Greek Banks Face Stress Tests At The Worst Time (Guardian)
National Bank of Greece Creditors Offer Funds to Prevent Losses (Bloomberg)
Greece: Plea For Unity As Banks Reopen (Guardian)
How Bad Things Were for Greek Banks When Capital Controls Were Introduced (BBG)
Syriza Inherited A Non-State (Fouskas and Dimoulas)
Commodity Rout Worsens as Prices Tumble to Lowest Since 2002 (Bloomberg)
Gold, Silver Near Five-Year Lows in Asia Trade (WSJ)
Why Gold Is Falling And Won’t Get Up Again (MarketWatch)
Greek VAT Rise Hurts As Bailout Terms Start To Bite (Reuters)
Yanis Varoufakis: Greece ‘Made Mistakes, There’s No Doubt’ (CNN)
In Greek Crisis, One Big Unhappy EU Family (Reuters)
“Athens Streets Will Fill With Tanks”: Kathimerini Reveals Grexit Shocker (ZH)
German Government Divided Over Greece (Handelsblatt)
How Can Greece Take Charge? (New Yorker)
Hollande Calls For Vanguard Of States To Lead Strengthened Eurozone (EUOberver)
Fed Tells Big Banks to Shrink (WSJ)
US Banks Prepare For Oil And Gas Company Loans To Worsen (Reuters)
BRICS Countries Launch New Development Bank In Shanghai (BBC)
Pope Francis Leading The New American (Socialist) Revolution (Paul B. Farrell)
Earth’s Most Famous Climate Scientist Issues Bombshell Sea Level Warning (Slate)

The Greeks better be fast then, or there’ll be nothing left to nationalize. The banks are part of the €50 billion asset sales plan.

Greek Banks Face Full Nationalisation (BBC)

Just because the doors of Greek banks are open today, don’t be fooled into thinking they and the Greek economy are anywhere near back to recovery. There are still major restrictions on the ability of their customers to obtain their cash or move it around: a) withdrawals per week are capped at €420; b) there is a ban on using deposits to repay loans early (because many Greeks would rather repay debts than risk seeing their savings wiped out in a bank crash or in a so-called bail-in which would see savings converted to bank shares of dubious value); c) it is still incredibly difficult for small and medium size businesses to purchase vital raw materials or other goods from abroad, because banks won’t make new loans and there are severe restrictions on foreign payments.

The symbolic importance of the ECB turning on the emergency lending tap again was important, but it has only been turned on a fraction. It has given enough additional Emergency Liquidity Assistance, €900m, to keep the banks alive in a technical sense. There is no possibility of them thriving for months and even possibly years. To put it in a Hellenic nutshell, the banks and the Greek economy remain in intensive care. The transmission of money is being facilitated in the most basic way, but there is no creation of new credit; and this credit freeze is a major impediment to consumer spending, and – perhaps more importantly – will lead to many businesses going bust in the coming weeks and months.

Which gives a certain frisson to a statement made only in May by Europe’s top banking supervisor, Daniele Nouy, chair of the so-called Single Supervisory Mechanism, the bank supervisory arm of the ECB. She said of Greek banks, in an interview with the Wall Street Journal, that “these banks have gone through important restructuring, important recapitalisations and a redefinition of their business models. They have never been better equipped to go through this kind of stressful situation”. Really? Just a few days ago, eurozone leaders and the IMF more or less pronounced the entire Greek banking system kaput, with their declaration that the banks need additional capital of €25bn euros – which, relative to the size of the Greek economy, represents one of the biggest banking black holes in the history of capitalism.

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“The Greek banks, stripped of many of their assets by the ECB, will need the ECB to make a reappearance in Athens to aid their recovery.”

Greek Banks Face Stress Tests At The Worst Time (Guardian)

Plenty of dangers lie in wait for Greek banks. Already short of cash, they may need lots more when stress tests of their solvency are carried out in a month or two. And unable to access the international money markets, they will be in a similar position to the Greek god Telephus, who was wounded by Achilles and yet needed Achilles to return as a doctor before he could be healed. The Greek banks, stripped of many of their assets by the ECB, will need the ECB to make a reappearance in Athens to aid their recovery. On a day when the Greek banks opened their doors for the first time in three weeks, the debate about future funding needs seemed far away.

Allowing access to the unknown treasures found in countless deposit boxes triggered a cheer, especially among the better off over-60s, if a quick glance at the queues outside branches was anything to go by. A couple of months from now, the story could take a grim turn. Not only will hundreds of millions of deposits have been withdrawn in that time, the weakening effects of a broader economic slowdown will have taken their toll. For one thing, the economy is likely to be another 5% smaller by the autumn than when the banks were stress-tested last time. Many businesses and personal customers will have acquired bigger debts with their banks. Others will have declared themselves bankrupt.

And this deterioration in loan quality will be reflected in a lower credit rating and a bigger need for replacement funding. The big four – Piraeus, Alpha Bank, Eurobank and National Bank of Greece – are already underpinned by €130bn of ECB funds. As their liquidity squeeze intensifies, that figure could soar. Swiss investment bank UBS warned that the stress tests may reveal a situation that is so bad the government will be forced to follow Cyprus and impose a haircut on all deposit accounts containing more than €100,000 . Even the hint of such a move will cause more panic. No doubt the ECB is working hard to limit any further harm.

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“As sophisticated investors in financial institutions, our clients would consider increasing their financial commitments to NBG under appropriate circumstances..” Appropriate meaning “All Your Base Are Belong To Us”

National Bank of Greece Creditors Offer Funds to Prevent Losses (Bloomberg)

A group of senior creditors to National Bank of Greece said they’ll consider recapitalizing the troubled lender to avoid incurring losses on their bonds. “As sophisticated investors in financial institutions, our clients would consider increasing their financial commitments to NBG under appropriate circumstances,” Shearman & Sterling LLP, the law firm representing the group, wrote in a July 17 letter to international creditors including the ECB and obtained by Bloomberg. “Our clients intend to ensure that their rights under all applicable laws are fully respected.” Greece’s tentative bailout deal puts senior bank bondholders explicitly in line for losses because it requires the country to adopt the EU’s Bank Resolution and Recovery Directive as a condition for aid.

Greece’s existing insolvency law excludes a bail-in of the debt, according to Fitch Ratings. The bondholders are seeking to ensure that Greece explores private-sector solutions before resorting to a bank resolution and that senior creditors are protected should it come to that, according to the letter, which was also addressed to the European Stability Mechanism, the vehicle set up to finance loans to distressed euro area countries, the president of the Eurogroup and the governor of the Bank of Greece. The group holds about 25% of NBG’s €750 million of senior bonds due April 2019, according to a person familiar with the matter who asked not to be identified because the information is private.

The bonds rose to 37 cents on the euro today after dropping by more than 70% since the start of the year to a record 21 cents on July 8, according to data compiled by Bloomberg. The notes represent about 40% of the €1.9 billion of privately-held senior debt issued by Greece’s four major banks, according to data compiled by Bloomberg. “The recent crisis arose entirely from decisions made by Greek and European political and monetary authorities that were wholly outside of NBG’s control,” the letter said. “Before additional capital and liquidity can be made available to Greek banks such as NBG, investors such as our clients, must have confidence in the Greek and European supervisory and resolution frameworks, and be assured of fair treatment.”

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“What worries me is that some people still think that there would be no austerity if we were out of the euro. This argument is absolutely false,” said state minister Nikos Pappas.”

Greece: Plea For Unity As Banks Reopen (Guardian)

The reopening of banks and repayment of debts returned Greece to a semblance of normality on Monday but the ruling Syriza party admitted it faced considerable political challenges in pushing through reforms. After a drama-filled month that saw the country come close to being ejected from the eurozone, the government, led by the prime minister, Alexis Tsipras, appealed for unity as it faced another make-or-break vote in Athens on Wednesday. As customers queued outside banks – after lenders opened their doors for the first time in three weeks – officials warned that the left-led coalition could fall if dissidents failed to endorse reforms set by international creditors as the price of further aid.

“What worries me is that some people still think that there would be no austerity if we were out of the euro. This argument is absolutely false,” said state minister Nikos Pappas, one of Tsipras’s closest aides. Addressing reporters, the foreign minister Nikos Kotzias said he believed fresh elections were “inevitable” in September or October because the government could not continue depending on the political opposition for support. The first package of reforms voted through by the Greek parliament last week was passed with the backing of three opposition parties, which have argued that Greece must be kept in the eurozone at any cost. But government officials have said elections could be held as early as 13 September amid fears that such an arrangement cannot last in the long term.

Amid mounting talk of early elections, Nikos Filis, the ruling Syriza party’s chief parliamentary representative, highlighted the dangers that lay ahead, saying the government would collapse if rebels rejected the measures. “When a government does not have [the support of] 120 MPs, legally there is no issue but politically there is,” he said. Last week, Syriza saw its support being whittled down from 149 to 123 MPs as lawmakers broke ranks over the controversial terms of an aid package worth as much as €86bn (£60bn) to keep the insolvent country afloat. The reforms included changes to the Greek pension system and VAT regime. The loss of support has meant that Tsipras now has a two-pronged battle on his hands: to meet the exacting terms of creditors while convincing increasingly hostile members of his own party to back them.

By Wednesday, the Greek parliament must, as requested by creditors, pass a law to overhaul its civil justice system, with the aim of speeding up processes and reducing costs. The government must also transpose the EU’s bank recovery and resolution directive into law. This law was part of Europe’s response to the 2008 banking crisis and should have been put into national law months ago.

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Excuse me? “Savers formed long queues in front of ATMs..”? Huh? How stupid does that sound?

How Bad Things Were for Greek Banks When Capital Controls Were Introduced (BBG)

Today the Greek central bank released its monthly balance sheet for June 2015. The balance sheet is dated to June 30—the day after capital controls were introduced in Greece. The seven-month jog on Greek lenders was about to turn into a full blown bank run during that last weekend of June, after Prime Minister Alexis Tsipras broke talks with creditors and called a referendum over the terms attached to the country’s bailout. Savers formed long queues in front of ATMs as doubts over the country’s place in the euro area spurred them to withdraw their cash from banks. The new data from the central bank shows that the total value of banknotes in circulation in Greece reached an all time high of €50.5 billion. That’s an increase of more than €5 billion in the month of June alone.

Tsipras was forced to impose a limit on withdrawals on June 28, after the ECB capped Emergency Liquidity Assistance (ELA) for Greek lenders, refusing to plug the hole from continuing deposit outflows. Much of the damage had been done already as Greek bank reliance on ECB operations, including ELA, meant that Greek Target2 liabilities with the rest of the eurosystem reached an all-time high at the end of the month. With the ECB limit on ELA, nobody, not even ordinary depositors, wanted to be exposed to Greek banks. Capital controls were the only option. That Tsipras and his then-finance minister were willing to allow things to get this serious before introducing capital controls underscores the high-risk strategy they were engaged in at the time.

Greek banks reopened this Monday, following a three-week forced holiday and only after Tsipras capitulated to creditors’ demands and committed to more austerity measures and structural economic overhauls. Still, draconian capital controls, including restrictions on withdrawals and transfers of money abroad, remain in place, and Greeks queued outside branches to get only basic services from their lenders.

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Syriza inherited a non-state, a completely dilapidated administrative apparatus with civil servants shivering in fear over who will be next to lose his/her job..”

Syriza Inherited A Non-State (Fouskas and Dimoulas)

Obviously, without Keynesian instruments at the national level and without a European federal state at the European level you cannot have any form of Keynesian policies. Too much reliance on the ECB – which, first and foremost, is a bank – and the “good will of European partners”, coupled with lack of institutional preparation to return to a national currency, has brought Syriza’s negotiating team to a standstill. Others, quite rightly, have argued that there has been no real negotiation since Syriza assumed office back in January 2015. The Germans, this argument goes, wanted regime change as they could not agree with the Greek Finance Minister’s reasonable demands – which included restructuring of the debt, ie debt relief.

In fact, this insight is correct: after the referendum of 5 July, the Greek PM sacked Finance Minister, Yanis Veroufakis, in order to keep his cabinet in place and avoid being pushed out by the creditors (mainly via financial and media warfare and permanently blocking liquidity to the Greek banks). Yet, what we have not seen being tackled is the following really dramatic issue. The creditors seem to be of the opinion that there is a Greek state in place that can implement and a Greek society that can accept the new austerity measures. This is reminiscent of the gruelling rationale behind America’s various wars post-9/11, but also before: we go to Afghanistan, Iraq and elsewhere to bring about the lights of liberal democracy, human rights and free market freedom capitalism.

This indicates total ignorance of the concrete societies and states they supposedly want to change and improve. In fact, wherever American power went, it only made things worse. Greece and the European periphery should be seen in the same light. Greek political elites, mixed with big comprador and corrupt interests, as well as the institutional materiality of the state as such, have always been fragmented, deeply inefficient and in the service of clientelist, corrupt and nepotistic deals and practices. But Syriza did not inherit just this. Syriza inherited a non-state, a completely dilapidated administrative apparatus with civil servants shivering in fear over who will be next to lose his/her job. Society itself, with 27% unemployment and 57% youth unemployment and unpaid salaries for months, swims in this strange mixed mood of anger, radicalization and demoralisation.

Recent administrative reforms in municipalities (the “Kapodistrias” and “Kallikratis” plans) caused havoc, further distancing the citizen from the state. Add to this the factional warfare within Syriza and the government and you will have one of the most inefficient ‘ruling’ machines in the west. In other words, Syriza’s state cannot reach the 1% primary surplus fiscal target; it will be unable to effect privatizations and other neo-liberal reforms required by the creditors in order to receive bail-out funds. The new anti-austerity package will fail. Even Syriza MPs who voted for it in the parliament may well boycott it. The PM himself said publicly that he does not believe it is a good deal.

Equally and arguably, for the same reason, a debtor-led default and exit from the Euro-zone will fail. A transition to the national currency requires a strong and well-organised state apparatus to lead an impoverished society through hardship to eventually achieve renewal and something positive at the end of a long and arduous journey. We argue that there is not enough state capacity in place to hold sway over the implementation of a new austerity package or indeed to buttress and deliver Grexit. So what is to be done now and in order to avoid a new election in Greece that is bound to achieve nothing of substance?

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Zombie money going “Poof”… Or, if you will, liquidity is drying up fast.

Commodity Rout Worsens as Prices Tumble to Lowest Since 2002 (Bloomberg)

The rout in commodities deepened with prices touching the lowest since 2002 as the prospect of higher U.S. interest rates sent gold tumbling. Raw materials are losing favor with investors as the dollar gains amid signals from Federal Reserve Chair Janet Yellen that the central bank may raise rates this year on the back of an improving U.S. economy. Higher borrowing costs curb the attractiveness of commodities such as gold, which doesn’t pay interest or give returns like assets including bonds and equities. The Bloomberg Commodity Index dropped as much as 1.4%, falling for a fifth day in the longest stretch of declines since March.

Gold futures sank to the weakest in more than five years while industrial metals, grains, Brent crude and U.S. natural gas also slid as a measure of the dollar climbed to the highest since April 13. “Any increase in U.S. interest rates should further strengthen the dollar, prompting more fund outflows from commodities, metals and emerging-market assets,” Vattana Vongseenin, the chief executive officer of Phillip Asset Management in Bangkok, said by phone. The Bloomberg Commodity Index slid 1.3% to 96.2949 at 10:10 a.m. New York time, after touching 96.1913, the lowest since June 2002. With raw materials fetching lower prices, shares of commodity producers are tumbling. The 15-member Bloomberg Intelligence Global Senior Gold Valuation Peers Index, which includes AngloGold Ashanti Ltd. and Newcrest Mining Ltd., dropped as much as 8.4%.

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Not a lot of objective opinions about why this is happening.

Gold, Silver Near Five-Year Lows in Asia Trade (WSJ)

Gold and silver prices continued to trade close to their lowest level in five years in Asia trade Tuesday amid rising expectations the U.S. Federal Reserve will raise interest rates later this year. Gold dipped below the psychological mark of $1,100 an ounce in early Asia hours, but quickly nudged above that level on bargain hunting. It was recently trading at $1,104.08/oz. “I think there is still going to be a little bit of pressure,” said Victor Thianpiriya, a commodity strategist at ANZ Bank. “Prices could head lower.” Mr. Thianpiriya said the yellow metal could test $1,000/oz in the near term, a level at which several mining companies might find it difficult to profit from extracting the commodity.

The gold market has turned bearish, with hedge funds that invest huge sums in gold futures reducing their long positions to nine-year lows. At the same time, speculators’ short positions—bets that gold could be bought cheaper in the future—have jumped in recent days. Analysts say a sustained rebound in gold prices is unlikely any time before the U.S. raises interest rates, a decision that is expected later this year after comments from U.S. Federal Reserve Chairwoman Janet Yellen last week. A rising dollar makes raw materials less affordable to overseas investors, while higher interest rates tend to draw money into yield-bearing assets and away from commodities, which pay their holders nothing and often carry storage costs.

Gold gained investors’ favor because of its safe-haven appeal after the 2008 financial crisis, but investors’ risk appetite seems to have increased with a modest economic recovery under way in the U.S. Moreover, the cost of holding gold looks set to increase because of an expected rise in U.S. interest rates. Other precious metals such as silver, platinum and palladium have fallen in gold’s slipstream. Silver prices nudged up from the opening price of $14.63 a troy ounce to $14.76 Tuesday, close to levels seen in early 2010. Platinum prices are at $974.70 a troy ounce, close to a six-and-half-year low, while palladium is near its lowest level since November 2012 at $605/oz.

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This is just one opinion. We are far more neutral.

Why Gold Is Falling And Won’t Get Up Again (MarketWatch)

Do you remember gold? It was kind of an analog bitcoin. It was a universal legal tender. Governments held it in forts. Your bank kept it in a safe. It was the most precious of precious metals. And investors bought gold GCQ5, -0.11% for safety’s sake when markets and economies crashed and the value of paper currency was in doubt. But that was a long time ago. Gold is down 40% from its financial-crisis peak in 2011. As Jeff Reeves notes in his column Monday: “The long-term trend remains decidedly against gold.” Reeves honorably calls himself a gold “agnostic” because he doesn’t want to get into conspiracy theories and some of the nonsense that surrounds the gold market. He wants to talk about the investment. I want to talk about the investors.

Because I don’t think it’s possible to separate the two. Gold has always been the favorite commodity of a fringe crowd that doesn’t trust governments, central banks, politicians and the financial system. This part of the gold market drives a lot of the buying and selling; it whips up a lot of frenzy. I don’t have any hard evidence, but I’d argue that gold’s value is inflated by people who aren’t investing in a commodity but in a belief system that may or may not include black helicopters and a U.S. invasion of Texas. The sad part is that gold always has been a sucker’s bet. It’s supposed to protect against inflation. It doesn’t. It’s supposed to retain its value. It doesn’t. For those reasons, gold is supposed to be the ultimate currency. It’s not. As fund manager and blogger Barry Ritholtz said of gold’s fundamentals: “It has none.”

Wall Street, of course, welcomes the business. Gold, after all, is hardly a useful commodity. If it had significant real purpose, it wouldn’t be sitting in vaults around the world. But, hey, we’ll trade it. We’ll trade anything. By and large, these special breed of gold bugs have ignored history. In the past century, gold has bubbled and popped at least a half dozen times, with crashes coming in 1915-20, 1941, 1947, 1951-66, 1974-76, 1981, 1983-85, 1987-2000 and 2008. If many of those dates seem to have a common thread, it’s because they do. They were, for the most part, periods of economic expansion. Who wants gold, when the stock market is booming or housing prices are soaring? Fundamentally, today’s gold market is no different. Stocks are holding near all-time highs. Interest rates could rise before the end of the year. Gold, on the other hand, is slip-sliding away.

What is different is how deep and long this gold bottom could go. As we move into an ever-techier world, gold has more competition: namely cryptocurrencies such as bitcoin that cater to the new generation of skeptics. The bitcoin market touts itself as an alternative to the currency markets and a hedge against inflation. Bitcoin’s value, like gold, is based on the confidence of the buyer, nothing more. Cryptocurrencies may also even prove to be useful (at which point they most likely will be unattractive to bitbugs).

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“When everything costs me 10% more, isn’t my pension’s buying power much weaker? It’s like a pension cut..”

Greek VAT Rise Hurts As Bailout Terms Start To Bite (Reuters)

To tourists wandering the narrow streets of central Athens, 20 cents on the price of souvlaki – a Greek favourite of grilled meat on a skewer – may not seem much. But for waiter Stavros Giokas, Monday’s jump in value-added tax is a big worry. The VAT rise, demanded by Greece’s lenders in return for a rescue deal, forced the restaurant where Giokas works to push up the price of souvlaki – wrapped in flatbread with salad and drizzled in tzatziki garlic yogurt – to €2.40 from €2.20. While a bargain for well-to-do northern European visitors, for Greeks worn down by years of austerity, the price increase is one more reason not to eat out. “People are counting every cent, not just for souvlakis,” Giokas said as he waited for customers, surrounded by empty tables decked in yellow and green tablecloths.

Some big, foreign-owned firms will absorb the rise in VAT on processed food and public transport from 13 to 23% without passing it on to customers. Other businesses may simply try to dodge paying the tax on some of their sales, a widespread practice that has contributed to Greece’s economic problems. But for many of those that do pay, there may be no other option than to pass on the rise to clients. “We can’t absorb the cost. Everything is getting more expensive: tomatoes, onions, tzatziki,” Giokas said. The tax hike will affect not only the cost of restaurant meals, processed food in shops and even salt, but also taxi fares and private school fees.

VAT jumped less than a week after the rise was approved in parliament as the leftist government of Prime Minister Alexis Tsipras tries to show other euro zone countries he is serious about reforms required to start talks on an 86 billion euro bailout deal that Greece needs to stay afloat. But across the country, workers, pensioners and economists alike worried about the impact of the increase on a population suffering from unemployment of over 25% and on an economy that was already forecast to contract this year. “When everything costs me 10% more, isn’t my pension’s buying power much weaker? It’s like a pension cut,” 65-year-old Nikos Koulopoulos said.

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“It’s not true we did not have a Plan B. We had a Plan B.” “We, in the Ministry of Finance, developed it. Under the egis of the Prime Minister, who ordered us to do this, even before we came in the Ministry of Finance.”

Yanis Varoufakis: Greece ‘Made Mistakes, There’s No Doubt’ (CNN)

Greece’s divisive former finance minister, Yanis Varoufakis, admitted on Monday that Greece made mistakes over its bailout negotiations, but he continued to lay the preponderance of blame for the Greek woes on the country’s creditors. “We made mistakes, there’s no doubt about that,” he told CNN’s Christiane Amanpour in his first international TV interview since stepping down earlier this month. “And I hold myself responsible for a number of them.” “But the truth of the matter, Christiane, is that the very powerful troika of creditors were not interested in coming a sensible, honorable, mutually beneficial agreement,” he said, referring to the IMF, the ECB, and the EC.

“I think that close inspection is going to reveal the truth of what I am saying: They were far more interested in humiliating this government and overthrowing it, or at least making sure that it overthrows itself in terms of its policies, than they were interested in an agreement that would for instance ensure that they would get most of their money back.” “It’s very hard for me, however much I would like to, to take responsibility for a policy over which I resigned.” Greece last week accepted terms for a third bailout that many say was on harsher terms than the potential deal that was on the table earlier this year. Varoufakis’ casual style, leather jackets, and motorcycle riding won him newspaper covers, but his negotiating style grated on his counterparts. He made sure to emphasize that he “resigned,” and was not “dismissed.”

He stepped down on the night of a controversial referendum, introduced by Prime Minister Alexis Tsipras, in which the majority of Greeks rejected the harsh austerity the government would later accept. “The people voted ‘no’ to this extending and pretending, but it became abundantly clear to me on the night of the referendum that the government’s position was going to be to say yes to it.” Despite his resignation of conscience, Varoufakis said he had sympathy for his former boss. “He was faced with a choice: Commit suicide or be executed.” “Alexis Tsipras decided that it [would] be best for the Greek people for this government to stay put and to implement a program which the very same government disagrees with.” “People like me thought that it would be more honorable, and in the long term more appropriate, for us to resign. This is why I resigned. But I recognize his arguments as being equally powerful as mine.”

[..] “It’s not true we did not have a Plan B. We had a Plan B.” “We, in the Ministry of Finance, developed it. Under the egis of the Prime Minister, who ordered us to do this, even before we came in the Ministry of Finance.” “Of course, you realize that these plans – Plan Bs – are always, by definition, highly imperfect, because they have to be kept within a very small circle of people, otherwise if they leak, a self-fulfilling prophecy emerges.” That plan, he said, was not for Greece to leave the Eurozone, a Grexit, but rather for the government to create “euro-denominated currency” – in other words, for the government to print its own, temporary currency, pegged to the value of the euro. “The fact of the matter is that that Plan B was not energized — I didn’t get the green light to effect it, to push the button, if you want.” That, he said, was one of the “main reasons why I resigned.”

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I love the absurdity embedded in the term “predictable chaos”.

In Greek Crisis, One Big Unhappy EU Family (Reuters)

The latest paroxysm of Greece’s debt crisis has exposed growing rifts in the euro zone which, unless addressed soon, could lead to the break-up of European monetary union, the EU’s most ambitious project. The most worrying sign for European leaders is that public opinion and domestic politics are pulling them increasingly in opposing directions – not just between Greece and Germany, the biggest debtor and the biggest creditor, but almost everywhere. Germans, Finns, Dutch, Balts and Slovaks no longer want taxpayers’ money to go to bail out Greeks, while the French, Italians and Greeks feel the euro zone is all about austerity and punishment and lacks solidarity and economic stimulus.

With central and east European states growing more assertive and the Dutch and Finns facing mounting domestic constraints, a compromise between euro zone leaders Germany and France, increasingly hard to find over Greece, is no longer sufficient to settle the problems. There are so many stakeholders with divergent views that crisis management is becoming ever more difficult. A far-reaching reform of the 19-nation currency area’s flawed structure seems a remote prospect. After weeks of late-night emergency meetings of leaders and finance ministers, culminating in a tense all-night summit, the euro zone produced a fragile deal to keep Greece afloat by making it a virtual protectorate under intrusive supervision. Few, if any, of the main protagonists think it will work.

Greek Prime Minister Alexis Tsipras said it was a bad deal that would make life worse for Greece but he had swallowed it because the alternative was worse. German Finance Minister Wolfgang Schaeuble said Athens would have done better to leave the euro zone – “temporarily” – to get a debt write-off. Chancellor Angela Merkel, Europe’s dominant leader, made clear the main virtue of the deal was to avoid something worse. “The alternative to this agreement would not be a ‘time-out’ from the euro … but rather predictable chaos,” she said. A senior EU official involved in brokering the compromise, who spoke on condition of anonymity, said there was now a “20, maybe 30% chance of success”. “When I look at the next two to three years, the next three months, I see only black clouds,” the official said. “All we succeeded in doing was to avoid a chaotic Grexit.”

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“..if implemented this plan, the streets of Athens will sound tracks of tanks.”

“Athens Streets Will Fill With Tanks”: Kathimerini Reveals Grexit Shocker (ZH)

And it wasn’t just outside observers drawing up Grexit plans. Despite the fact that EU officials denied the existence of a “Plan B” right up until German FinMin Wolfgang Schaeuble’s “swift time-out” alternative was “leaked” last weekend, no one outside of polite eurocrat circles pretends that a Greek exit wasn’t contemplated all along and indeed Yanis Varoufakis contends that Athens was threatened with capital controls as early as February if it did not acquiesce to creditor demands. Now, in what is perhaps the most shocking revelation yet about what EU officials really thought may happen in the event Greece crashed out of the EMU and unceremoniously reintroduced the drachma, Kathimerini is out with a description of what the Greek daily calls the “Grexit Black Book,” which purportedly contained the suggestion that civil war would breakout in Greece in the event the country was forced out of the currency bloc. Here’s more (Google translated):

“On the 13th floor of the building Verlaymont in Brussels, a few meters from the office of the European Commission President, Jean-Claude Juncker, stored in a special security room and in a safe Greece’s exit plan from the Eurozone. There, in a multi-page volume, written in less than a month from 15-member team of the European Commission, answered questions on how to tackle such an outflow, including, as shocking as it may sound, even the possibility of the country out of the Schengen Treaty, and not only being driven outside the euro, but also outside the EU.

According to European official, in that the European Commission Summit already had a bound volume, a multi-page document, which described the Greek prime minister, before the start of the session, by the same Mr. Juncker with all the details of a Grexit , giving him to understand the legal and political context of such a decision. In multipage document in accordance with European official who has the ability to know its contents, there are detailed answers to 200 questions that would arise in case Grexit. These questions, as he explains official, are interrelated, as an exit from the euro would create a cascade of events, which would evolve in a relatively short time. From the drachmopoiisi economy to foreign exchange controls that would take place at the country’s borders and which will ultimately lead at the exit of Greece from the Schengen Treaty.

The authors of the draft, according to European official, conducted under conditions of absolute secrecy. A special group of 15 people of the European Commission, by direct contact with Greece started to prepare, and was also in direct contact with a number of senior officials and DGs in the European Commission who had expertise in specific areas. The writing of the project started when the expiry date of the program (end of June) was approaching, so it is the Commission prepared for every eventuality, and by the time the referendum was announced, Friday, June 26, the relevant procedures were accelerated. The weekend of the work referendum intensified, so now two days later, Tuesday of that Synod, the project has been finalized.

According to well-informed source, involved in creating the plan worked “suffer the pain” as typically describe the “K” and “overwhelmed” because they could not believe that things had reached this point, and most of them had direct involvement with the Greek rescue programs. The European Commission also was hoped that even until the last minute solution would be found as members of this group knew better than anyone the consequences exit of Greece from the Eurozone and understand the cost of such a decision. One of those involved with direct knowledge of Greek reality in the critical phase of the training, he said the rest of the group that “if implemented this plan, the streets of Athens will sound tracks of tanks.”

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Merkel equals spineless.

German Government Divided Over Greece (Handelsblatt)

Angela Merkel was understandably cautious in her response: “Nobody came to me and asked for any kind of dismissal,” the German chancellor said in an interview with public broadcaster ARD on Sunday. The question was about Wolfgang Schäuble, her finance minister and fellow Christian Democratic Party (CDU) member, who in an interview with Germany’s Der Spiegel magazine on Sunday said he was prepared to resign if ever forced to take a position on Greece that he didn’t agree with. “We have a joint result, and the finance minister will now lead these negotiations just as I will,” Ms. Merkel said. She added, firmly: “We will now work together in this coalition and of course together in the [Christian Democratic] Union.”

These words were aimed as much at her fiercely independent finance minister as anyone else, and were designed to smooth over the massive gulf of opinion within her own party over Greece. The issue of Greece, and whether or not the troubled country deserves its third bailout in five years to stave off bankruptcy, has opened up a chasm in Ms. Merkel’s governing coalition. On the one side is Mr. Schäuble and the right wing of the CDU party. While Ms. Merkel says a “Grexit” has been off the table since euro zone leaders agreed to give Greece a third, final bailout last week, her finance minister believes it remains very much in the cards. On the other side is Ms. Merkel’s junior coalition partner, the Social Democrats, led by deputy chancellor and economics minister Sigmar Gabriel.

Sources in Berlin say that the relationship between Mr. Schäuble and Mr. Gabriel has been irreparably damaged by the Greece crisis. For now, Ms. Merkel’s coalition is holding. The German parliament, the Bundestag, voted overwhelmingly on Friday in favor of the E.U. starting talks with Greece over a third bailout aimed at keeping Greece inside the 19-nation currency bloc. The vote removed a final stumbling block, allowing E.U. negotiators to this week get down to the business of ironing out the details of the bailout package. But, like Mr. Schäuble, many parliamentarians remain hugely skeptical that the negotiations will really bear fruit. Significantly 65 members of the CDU did not back the government on Friday in the Greek vote.

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More of the “Greece should be like Germany” meme.

How Can Greece Take Charge? (New Yorker)

Even if Greece gets the debt relief that the IMF is recommending, the next few years will be grim. As James Galbraith, an economist at the University of Texas at Austin, who assisted the former Greek finance minister during this year’s negotiations, told me, “What’s going to happen in Greece is going to be very sad.” So what can Greece do? It really has only one option—to make the economy more productive and, above all, to export more. It’s easy to focus on Greece’s huge pile of debt, but, according to Yannis Ioannides, an economist at Tufts University, “debt is ultimately the lesser problem. Productivity and the lack of competitive exports are the much more important ones.”

There are structural issues that make this challenging. Greece is never going to be a manufacturing powerhouse: almost half of all Greek manufacturers have fewer than fifty employees, which limits productivity and efficiency, since they don’t enjoy economies of scale. Greece also has a legal and business environment that discourages investment, particularly from abroad. Contractual disputes take more than twice as long to resolve as in the average E.U. country. Greece has been among the most difficult European countries in which to start and run a business, and it has myriad regulations designed to protect existing players from competition. All countries have rules like this, but Greece is an extreme case. Bakeries, for instance, can sell bread only in a few standardized weights.

Recently, Alexis Tsipras, the Greek Prime Minister, had to promise that he would “liberalize the market for gyms.” The scale of these problems makes Greece’s task sound hopeless, but simple reforms could have a big impact. Contrary to its image in Europe, Greece has already made moves in this direction: between 2013 and 2014, it jumped a hundred and eleven places in the World Bank’s “ease of starting a business” index. And reform doesn’t mean Greece needs to abandon the things that make it distinctive. In fact, in the case of exports, the country has important assets that it hasn’t taken full advantage of. Greek olive oil is often described as the best in the world. Yet 60% of Greek oil is sold in bulk to Italy, which then resells it at a hefty markup.

Greece should be processing and selling that oil itself, and similar stories could be told about feta cheese and yogurt; a 2012 McKinsey study suggested that food products could add billions to Greece’s G.D.P. Similarly, tourism, though it already accounts for 18% of G.D.P., has a lot more potential. Most tourists in Greece are Greek themselves, a sign that the country could do a much better job of tapping the booming global tourism market. Doing so would require major investments in improving ports and airports, and in marketing. But the upside could be huge. Greece also needs to stem its current brain drain. It produces a large number of scientists and engineers, but it spends little on research and development, so talent migrates abroad. And there are other ways that Greece could capitalize on its climate and its educated workforce; as Galbraith suggests, it’s an ideal location for research centers and branches of foreign universities.

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“People turn away because they have been bypassed..” So you just bypass them some more?

Hollande Calls For Vanguard Of States To Lead Strengthened Eurozone (EUOberver)

French president Francois Hollande has called for a stronger more harmonised eurozone following a politically turbulent few weeks in which crisis with Greece has exposed the fault-lines in how the single currency is managed. “What threatens us is not too much Europe, but too little Europe,” he said in a letter published in the Journal du Dimanche. He called for a vanguard of countries that would lead the eurozone, which should have its own government, a “specific budget” and its own parliament. “Sharing a currency is much more than wanting convergence. It is a choice that 19 countries have made because it is in their interest,” he wrote adding that this “choice” requires a “strengthened” organisation.

French prime minister Manuel Valls Sunday said the vanguard should include the six founding countries of the EU: France, Germany, Italy, Belgium, Luxembourg and the Netherlands. He said France would prepare “concrete proposals” in the coming weeks. “We must learn the lessons and go much further,” he added, referring to the Greek crisis. “Europe has let its institutions weaken and the 28 governments struggle to agree to move forward. Parliaments are too far from decisions. People turn away because they have been bypassed,” said Hollande. He added that “populists” have seized upon this “disenchantment” with Europe. Hollande’s calls come as the eurozone is locked in recriminations over its handling of Greece.

The country is set to get a third bailout following eleventh hour negotiations last week however neither the Athens government nor Berlin, the main architect of the bailout programme, believe it will be a success. It exposed divisions between a camp of hardliners led by Germany, whose finance minister advocated a eurozone exit for Greece, and a camp led by France and Italy, which argued that the EU as a whole would be damaged if Greece left the euro.

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” The Fed “clearly intends the very largest U.S. banks to buckle under this new capital regime, restructuring quickly and dramatically..”

Fed Tells Big Banks to Shrink (WSJ)

Federal Reserve sent a message to the largest U.S. financial firms: Staying big is going to cost you. The Fed’s warning, articulated in a pair of rules it finalized Monday, is among the central bank’s starkest postcrisis regulatory moves pressing Wall Street banks to reconsider their size and appetite for risk. The Fed completed one rule stating that the eight largest banks in the country should maintain an additional layer of capital to protect against losses, its plainest effort yet to encourage them to shrink. At the same time, it offered a reprieve to General Electric’s finance unit from more-intensive regulation, after the company promised to cut its assets by more than half. The moves reinforce the central mandate of the Dodd-Frank financial overhaul law signed by President Barack Obama five years ago.

Regulators have pushed big banks to expand their capital buffers to better absorb losses, reduce their reliance on volatile forms of funding, improve their risk management and cut back on risky assets. So-called stress tests measure banks’ resilience each year and can restrict shareholder payouts at firms that don’t pass. For Wall Street banks and their investors, the emerging regime presents a series of choices: specifically whether to pay the cost of new regulation, which will fall to the bottom line, or change their business models by shedding businesses or withdrawing from certain markets, such as owning commodities. The Fed “clearly intends the very largest U.S. banks to buckle under this new capital regime, restructuring quickly and dramatically,” said Karen Petrou at Federal Financial Analytics.

J.P. Morgan Chase, the largest U.S. bank with assets worth $2.449 trillion, will have to maintain more capital than any of its peers, with its minimum capital requirement raised by 4.5% of assets under management as a result of the new rule. J.P. Morgan has resisted calls from lawmakers and others to break up its operations, and instead has jettisoned or adjusted businesses to comply with the new mandates. “Everything’s doable—it just costs money,” said Glenn Schorr, a banking-industry analyst with Evercore ISI. Mr. Schorr said banks could hold less capital but would have to cut parts of their business.

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You’d be forgiven for presuming they already did that.

US Banks Prepare For Oil And Gas Company Loans To Worsen (Reuters)

U.S. banks are setting aside more money to cover bad loans to energy companies after oil prices plunged over the last year, raising the possibility that deteriorating loans could start to weigh on their earnings, some analysts said. Loan credit quality for U.S. banks has been improving since the financial crisis. In the first quarter, 2.49% of loans on banks’ books were delinquent, the lowest level since the fourth quarter of 2007, according to the Federal Reserve, which hasn’t released second quarter data. The rate peaked at 7.4% in the first quarter of 2010. Weakness among energy company loans could be a sign that overall credit quality among U.S. banks has little room to improve, analysts said.

Executives from both JPMorgan Chase and Wells Fargo told investors last week, when posting earnings, that they were increasingly concerned about loans to oil and gas companies. Texas bank Comerica on Friday set aside about three times as much money to cover bad loans as analysts had expected, sending the regional bank’s shares lower by more than 6% after the bank reported earnings Friday. Setting aside more money, known as “provisioning,” hurts earnings. “The banks really have very low credit costs and those can go higher,” said Fred Cannon, who heads research at Keefe Bruyette & Woods. While “energy overall is not a life threatening issue for the banks, it is earnings threatening,” he said.

JPMorgan said on Tuesday it provisioned another $252 million to cover potentially bad wholesale business loans in the quarter, with $140 million of that related to oil and gas lending. Oil prices rallied in March and April, but in recent weeks have fallen again on expectations that loosened sanctions against Iran create the potential for greater supplies. U.S. crude oil prices fell below $50 a barrel on Monday for the first time since April.

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This could come back to hurt the west a lot.

BRICS Countries Launch New Development Bank In Shanghai (BBC)

The Brics group of emerging economies on Tuesday launched its New Development Bank (NDB) in Shanghai. The bank is backed by Brazil, Russia, India, China and South Africa – collectively known as Brics countries. The NDB will lend money to developing countries to help finance infrastructure projects. The bank is seen as an alternative to the World Bank and the IMF, although the group says it is not a rival. “Our objective is not to challenge the existing system as it is but to improve and complement the system in our own way,” NDB President Kundapur Vaman Kamath said. The Brics nations have criticised the World Bank and the IMF for not giving developing nations enough voting rights. The bank is expected to issue its first loans early next year.

The opening comes two weeks after the last Brics summit in the Russian city Ufa, where the final details were discussed. At the time, Russian Foreign Minister Sergei Lavrov said that the five countries “illustrate a new polycentric system of international relations”.
The bank is to start out with a capital of $50bn though the amount is to be doubled in the coming years. The biggest contributor will be the world’s second largest economy China, which also led the establishment of another new international bank, the Beijing-based Asian Infrastructure Development Bank. The NDB is to be headed by a rotating leadership with the first president, Mr Kamath, coming from India. It was first proposed in 2012 but protracted negotiations over headquarters, management and funding have long delayed the actual launch.

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Farrell keeps at it.

Pope Francis Leading The New American (Socialist) Revolution (Paul B. Farrell)

Yes, Pope Francis is encouraging civil disobedience, leading a rebellion. Listen closely, Francis knows he’s inciting political rebellion, an uprising of the masses against the world’s superrich capitalists. And yet, right-wing conservatives remain in denial, tuning out the pope’s message, hoping he’ll just go away like the “Occupy Wall Street” movement did. Never. America’s narcissistic addiction to presidential politics is dumbing down our collective brain. Warning: Forget Bernie vs. Hillary. Forget the circus-clown-car distractions created by Trump vs. the GOP’s Fab 15. Pope Francis is only real political leader that matters this year. Forget the rest. Here’s why:

Pope Francis is not just leading a “Second American Revolution,” he is rallying people across the Earth, middle class as well as poor, inciting billions to rise up in a global economic revolution, one that could suddenly sweep the planet, like the 1789 French storming the Bastille. Unfortunately, conservative capitalists — Big Oil, Koch billionaires, our GOP Congress and all fossil-fuel climate-science deniers — are blind to the fact their ideology is on the wrong side of history, that by fighting a no-win battle they are committing suicide, self-destructing their own ideology. The fact is: The era of capitalism is rapidly dying, a victim of its own success, sabotaged by greed and a loss of a moral code. In 1776 Adam Smith’s capitalism became America’s core economic principle.

We enshrined his ideal of capitalism in our constitutional freedoms. We prospered. America became the greatest economic superpower in world history. But along the way, America forgot Smith’s original foundation was in morals, values, doing what’s right for the common good. Instead we drifted into Ayn Rand’s narcissistic “mutant capitalism,” as Vanguard’s founder Jack Bogle called the distortion of Adam Smith’s principles in his classic, “The Battle for the Soul of Capitalism.” The battle is lost. In the generation since the Reagan Revolution, America’s self-centered, consumer-driven, mutant capitalism lost its moral compass, drifting: Inequality explodes, income growth stagnates, the poor keep getting poorer. Yet across the world, billionaires have explode from 322 in 2000 to 1,826 in 2015, with 11 trillionaire capitalist families predicted to control the planet by 2100.

But not for much longer, as Pope Francis’ revolution accelerates, as his relentless socialist message of sacred rights for all people makes clear. Why? Our mutating capitalist elite have triggered a massive backlash, a “profound human crisis, the denial of the primacy of the human person. The worship of the ancient golden calf has returned in a new and ruthless guise in the idolatry of money.”

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“..sea level rise of at least 10 feet in as little as 50 years.”

Earth’s Most Famous Climate Scientist Issues Bombshell Sea Level Warning (Slate)

In what may prove to be a turning point for political action on climate change, a breathtaking new study casts extreme doubt about the near-term stability of global sea levels. The study—written by James Hansen, NASA’s former lead climate scientist, and 16 co-authors, many of whom are considered among the top in their fields—concludes that glaciers in Greenland and Antarctica will melt 10 times faster than previous consensus estimates, resulting in sea level rise of at least 10 feet in as little as 50 years. The study, which has not yet been peer reviewed, brings new importance to a feedback loop in the ocean near Antarctica that results in cooler freshwater from melting glaciers forcing warmer, saltier water underneath the ice sheets, speeding up the melting rate.

Hansen, who is known for being alarmist and also right, acknowledges that his study implies change far beyond previous consensus estimates. In a conference call with reporters, he said he hoped the new findings would be “substantially more persuasive than anything previously published.” I certainly find them to be. To come to their findings, the authors used a mixture of paleoclimate records, computer models, and observations of current rates of sea level rise, but “the real world is moving somewhat faster than the model,” Hansen says. Hansen’s study does not attempt to predict the precise timing of the feedback loop, only that it is “likely” to occur this century. The implications are mindboggling: In the study’s likely scenario, New York City—and every other coastal city on the planet—may only have a few more decades of habitability left.

That dire prediction, in Hansen’s view, requires “emergency cooperation among nations.”We conclude that continued high emissions will make multi-meter sea level rise practically unavoidable and likely to occur this century. Social disruption and economic consequences of such large sea level rise could be devastating. It is not difficult to imagine that conflicts arising from forced migrations and economic collapse might make the planet ungovernable, threatening the fabric of civilization.”

Read more …

Jul 182015
 
 July 18, 2015  Posted by at 12:59 pm Finance Tagged with: , , , , , , , , ,  20 Responses »
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NPC “Georgetown-Marines game” 1923

I started writing this on my last night in Athens for now, Wednesday, and had no time to finish it then:

On the eve of my temp absence from this great city, a few things. I could simply extend my stay, which might be slightly cheaper, but A) flights to Athens cost less all the time, and B) I have to go see my mom in Holland, who’s not doing well at all. On top of that, Nicole arrived in Holland last week, and we might as well just fly out back here together in a few weeks.

My ‘job’ here is by no means done, anyway. Because of the general strike today, another Solidarity Clinic that I wanted to donate some of your AE for Athens Fund money to, is closed (update on the Fund tomorrow). Parliament is debating the latest Troika strangle plan as we speak, and who knows what tomorrow will bring? An entire economy is being deliberately suffocated, and all in all it’s just total madness. Quiet madness, though (update: and then the riots broke out..).

Two things I’ve been repeatedly asked to convey to you are that:

1) you can’t trust any Greek poll or media, because the media are so skewed to one side of the political spectrum, and that side is not SYRIZA (can you imagine any other country where almost all the media are against the government, tell outright lies, use any trick in and outside the book, and the government still gets massive public support?!),

and:

2) Athens is the safest city on the planet. I can fully attest to that. Not one single moment of even a hint of a threat, and that in a city that feels very much under siege (don’t underestimate that). And people should come here, and thereby support the country’s economy. Don’t go to Spain or France this year, go to Greece. Europe is trying to blow this country up; don’t allow them to.

Then: I was reminded of something a few days ago that has me thinking -all over- ever since. That is, to what extent has Greece simply been a set-up, and a lab rat, for years now? I’m not sure I can get to the bottom of this all in one go, but maybe I don’t have to either. Maybe the details will fill themselves in as we go along.

One Daniel Neun wrote on Twitter, in German, translation mine, that:

Greece’s 2009 deficit was retroactively manipulated upward through a collaboration of the EU, IMF, PASOK, Eurostat (EU statistics bureau) and Elstat (Greek statistics bureau). That is the only reason why interest rates on Greek sovereign bonds skyrocketed in the markets, which in turn made Greek debt levels skyrocket.

The political and media narrative has consistently been that Greece “unexpectedly” and “all of a sudden” in late 2009, when a new government came in, was “found out” to have much higher debt levels than “previously thought”. And then had to appeal for a massive bailout. Obviously, Neun’s version is quite different. His doesn’t look like just another wild assumption, since he names a few sources, among which this from Kathimerini dated January 22, 2013:

Greece’s Statistics Chief Faces Charges Over Claims Of Inflated 2009 Deficit Figure

The head of Greece’s statistics service, Andreas Georgiou, and two board members at the Hellenic Statistical Authority (ELSTAT) are to face felony charges regarding the alleged manipulation of the country’s deficit figure in 2009.

Financial prosecutors Spyros Mouzakitis and Grigoris Peponis have asked a special magistrate who deals with corruption issues to investigate whether claims that Georgiou, the head of the national accounts department Constantinos Morfetas and the head of statistical research, Aspasia Xenaki, were responsible for massaging the figures so that Greece’s deficit appeared larger than it actually was, triggering Athens’s appeal for a bailout.

The three face charges of dereliction of duty and making false statements. Ex-ELSTAT official Zoe Georganta caused a storm in 2011 when she accused Georgiou of pumping up Greece’s deficit to over 15% of GDP, which was more than three times higher than the government had forecast in 2009.

However, she told a panel of MPs last March that she knew of no organized plan behind this alleged manipulation of statistics, instead blaming the politicians that handled Greece’s passage to the EU-IMF bailout of “inexperience, inability or maybe some of them profited.” The former ELSTAT official claimed that the deficit for 2009 should have been 12.5% of GDP and could have easily been brought to below 10% with immediate measures.

As well as this from Greek Reporter dated June 18 2015:

The 2009 Deficit Was Artificially Inflated, Former ELSTAT Official Tells Greek Parliament

Greece’s deficit figures for 2009 and 2010 were deliberately and artificially inflated, and this was at least partly responsible for the imposition of bailouts and austerity programs on the country, a former vice president of the Hellenic Statistical Authority (ELSTAT), Nikos Logothetis, said.

Testifying before a Parliamentary Investigation Committee on examining and clarifying the conditions under which Greece entered its bailout programs and the accompanying Memorandums, Logothetis called ELSTAT president Andreas Georgiou a “Eurostat pawn” that had converted the statistics service into a “one-man show.” He also accused Georgiou of bending the rules and “using tricks” to bump up the deficit’s size.

“A lot of the criteria were violated in order to include public utilities in the deficits. The deficit was enlarged even more by the one-sided fiscal logic of ELSTAT president Andreas Georgiou. It should not have been above 10%. The ‘alchemy’ that was carried out demolished our credibility, drove spreads sky high and we were unable to borrow from the markets. The enlargement of the deficits legitimized the first Memorandum and justified the second for the implementation of odious measures,” Logothetis said.

Noting that this was the third time he was testifying, Logothetis pointed out that Georgiou’s practices had been questioned by himself and other ELSTAT board members (most prominently by Zoe Georganta) but Georgiou had chosen to silence them so that the deficit figure was released only with his own approval and that of Eurostat.

Logothetis claimed that Georgiou had avoided meeting with ELSTAT’s board, even after Logothetis resigned, because the board’s majority would have questioned his actions. He also insisted that “centers” outside of Greece had played a role and needed someone on the “inside,” while he suggested that “someone wanted to bring the IMF into Europe.”

The former ELSTAT official said he was led to this conclusion by “seeing spreads rise as a result of the statistical figures until we reached a real enlargement of the deficits, violating the until-then not violated Eurostat criteria.”

A view from the ground was provided earlier today by my friend Dimitri Galanis in Athens when I asked him about this:

Let me help you a bit: September 2008 Wall Street crashes. For a whole year the whole planet is furious against TBTF banks and filthy rich bank CEOs. A year later – 2009 – the Deus ex machina – Georges Papandreou, then the newly elected Greek PM, “discovers” all of a sudden that Greek debt was bigger than everybody “imagined”.

The EU is “surprised” – Oh nobody knew!!! [everybody knew] Et voila: The Wall Street crisis becomes the Greek and Eurozone crisis. IMF gets a footing in the eurozone. Wall Street, French and German banks get bailed out. Greece suffers – Eurozone on the brink of collapse.

Greece is the tree – the rest is the forest .

And then I saw a piece by former US Secretary of Labor Robert Reich yesterday:

How Goldman Sachs Profited From the Greek Debt Crisis

The Greek debt crisis offers another illustration of Wall Street’s powers of persuasion and predation, although the Street is missing from most accounts. The crisis was exacerbated years ago by a deal with Goldman Sachs, engineered by Goldman’s current CEO, Lloyd Blankfein. Blankfein and his Goldman team helped Greece hide the true extent of its debt, and in the process almost doubled it.

And just as with the American subprime crisis, and the current plight of many American cities, Wall Street’s predatory lending played an important although little-recognized role. In 2001, Greece was looking for ways to disguise its mounting financial troubles. The Maastricht Treaty required all eurozone member states to show improvement in their public finances, but Greece was heading in the wrong direction.

Then Goldman Sachs came to the rescue, arranging a secret loan of €2.8 billion for Greece, disguised as an off-the-books “cross-currency swap”—a complicated transaction in which Greece’s foreign-currency debt was converted into a domestic-currency obligation using a fictitious market exchange rate. As a result, about 2% of Greece’s debt magically disappeared from its national accounts.

For its services, Goldman received a whopping €600 million, according to Spyros Papanicolaou, who took over from Sardelis in 2005. That came to about 12% of Goldman’s revenue from its giant trading and principal-investments unit in 2001—which posted record sales that year. The unit was run by Blankfein.

Then the deal turned sour. After the 9/11 attacks, bond yields plunged, resulting in a big loss for Greece because of the formula Goldman had used to compute the country’s debt repayments under the swap. By 2005, Greece owed almost double what it had put into the deal, pushing its off-the-books debt from €2.8 billion to €5.1 billion.

In 2005, the deal was restructured and that €5.1 billion in debt locked in. Perhaps not incidentally, Mario Draghi, now head of the ECB and a major player in the current Greek drama, was then managing director of Goldman’s international division. Greece wasn’t the only sinner. Until 2008, EU accounting rules allowed member nations to manage their debt with so-called off-market rates in swaps, pushed by Goldman and other Wall Street banks.

In the late 1990s, JPMorgan enabled Italy to hide its debt by swapping currency at a favorable exchange rate, thereby committing Italy to future payments that didn’t appear on its national accounts as future liabilities. But Greece was in the worst shape, and Goldman was the biggest enabler.

Undoubtedly, Greece suffers from years of corruption and tax avoidance by its wealthy. But Goldman wasn’t an innocent bystander: It padded its profits by leveraging Greece to the hilt—along with much of the rest of the global economy. Other Wall Street banks did the same. When the bubble burst, all that leveraging pulled the world economy to its knees.

Even with the global economy reeling from Wall Street’s excesses, Goldman offered Greece another gimmick. In early November 2009, three months before the country’s debt crisis became global news, a Goldman team proposed a financial instrument that would push the debt from Greece’s healthcare system far into the future.

This time, though, Greece didn’t bite.

As we know, Wall Street got bailed out by American taxpayers. And in subsequent years, the banks became profitable again and repaid their bailout loans. Bank shares have gone through the roof. Goldman’s were trading at $53 a share in November 2008; they’re now worth over $200. Executives at Goldman and other Wall Street banks have enjoyed huge pay packages and promotions. Blankfein, now Goldman’s CEO, raked in $24 million last year alone.

Meanwhile, the people of Greece struggle to buy medicine and food.

Note: when Reich says that “..Goldman wasn’t an innocent bystander: It padded its profits by leveraging Greece to the hilt..”, he describes a tried and true Wall Street model. This is how investment firms like for instance Mitt Romney’s Bain Capital operate: take over a company, load it up with (leveraged) debt, strip its assets and then throw the debt-laden remaining skeleton back unto the public sphere. In this sense, the Troika and its Wall Street connections function as a kind of venture/vulture fund with regards to Greece. Nothing new, other than it’s never been perpetrated on a European Union country before.

So what do you think: was Greece set up to fail from at least 6 years ago, has it all been a coincidence, or did they maybe just get what they deserve?

Here’s a short timeline. In October 2009, Papandreou becomes the new PM. Shortly thereafter, he “discovers” with the help of Elstat head Andreas Georgiou that the real Greek deficit is not the less than 5% the previous government had predicted, but more than 15%. Within months, salaries and pensions or cut or frozen and taxes are raised. That apparently doesn’t achieve the intended goals, so Papandreou asks for a bailout.

Within 10(!) days, ECB, EU and IMF (aka Troika) fork over €110 billion. The conditions the bailout comes with, cause the Greek economy to fall ever further. Moreover, everyone today can agree that no more than 10% of the €110 billion ever reaches Greece; the remainder goes to the banks that had lent it too much money to begin with.

The remaining investors -the big bailed out banks had fled by then- agree to a 50% haircut, with even more odious conditions for Greece. Papandreou wants a referendum over this and is unceremoniously removed. Technocrat Lucas Papademos is appointed his successor. As Athens literally burns in protest, a second bailout of €136 billion is pushed through. More and deeper austerity follows.

By now, a large segment of the population is unemployed, and pensions are a fraction of what they once were. In an economy that depends to a large extent on domestic consumption, there could hardly be a bigger disaster. Papademos must be replaced because he has no support left, and Samaras comes in.

He allegedly posts a budget surplus, but that is somewhat ironically only possible because the entire economy is no longer functioning. Greek debt-to-GDP rises fast. The Greek people this time revolt not by fighting in the streets, but by electing Syriza.

And that brings us back to January 25 2015. And eventually to Thursday, July 16 2015.

What have the bailouts achieved? Well, the Greek economy is doing worse than ever, and the people are poorer than ever. Both have a lot more bad ‘news’ to come. So says the latest bailout imposed on Tsipras at gunpoint.

To go back to 2009, if the Elstat people who testified -multiple times- before the Greek Parliament were right, there would have been either no need for a bailout, or perhaps a much smaller one. Which, crucially, would not have required IMF involvement.

It therefore doesn’t look at all unlikely that Greece was saddled with an artificially raised deficit, and that the intention behind that, all along, was to get the Troika ‘inside’ for the long run. So the country could be stripped of all its assets.

The bailouts needed to be as big as they were to 1) successfully make the international banks ‘whole’ that had lent as much as they had into the Greek economy, 2) get the IMF involved, 3) and absolve the notorious -and cooperative- domestic oligarchy from any pain. And make all the usual suspects a lot more money in the process.

The added benefit was that it was obvious from the start that the Greeks would never be able to pay the Troika back, and would be their debt slaves for as long as the latter wanted, giving up all their treasured possessions in the process.

Or, alternatively, it could all have been a terribly unfortunate coincidence. It would be a curious coincidence, though.

Jul 162015
 
 July 16, 2015  Posted by at 4:27 am Finance Tagged with: , , , , , ,  5 Responses »
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John Collier Grandfather Romero, 99 years old. Trampas, New Mexico 1943

China’s Debt-to-GDP Ratio Just Climbed to a Record High (Bloomberg)
China Stock Suspensions Opens Can Of Derivatives Worms (Reuters)
Greek Lawmakers Pass Austerity Bill Despite Strong SYRIZA Dissent (Kathimerini)
EMU Brutality In Greece Has Destroyed The Trust Of Europe’s Left (AEP)
Lexit: The Left Must Now Campaign To Leave The EU (Guardian)
There’s No End In Sight To The Greco-European Drama (Guardian)
Shock Announcement From IMF Reveals Greece Was Duped by Europe (EI)
The EU Shot Its Greek Hostage, Now Spain Is Nervous (Fiscal Times)
Greece’s Lessons for an Indebted World (WSJ)
13 Short Lessons From The Greek Crisis (J.W. Mason)
The Euro-Summit ‘Agreement’ on Greece – Annotated (Yanis Varoufakis)
I Love Germany. And Greece. And Especially Finland. (Waldman)
IMF Chief: Greek Bailout Talks a ‘Colossal’ Challenge Going Forward (WSJ)
Greek Pudding (Jim Kunstler)
What’s Wrong with Our Monetary System and How to Fix It (Kuzminski)
Kiwi Dollar Falls As Dairy Prices Plunge At Latest Auction (NZ Herald)

Private debt: 207%.

China’s Debt-to-GDP Ratio Just Climbed to a Record High (Bloomberg)

While China’s economic expansion beat analysts’ forecasts in the second quarter, the country’s debt levels increased at an even faster pace. Outstanding loans for companies and households stood at a record 207% of GDP at the end of June, up from 125% in 2008, data compiled by Bloomberg show. China’s stimulus, including interest rate and reserve-ratio cuts to shore up growth, threatens to delay the country’s efforts to reduce its debt, posing risks to the financial stability of the world’s second-largest economy. Nonperforming loans had already climbed by a record 140 billion yuan ($23 billion) in the first quarter as the expansion in gross domestic product slowed.

“It’s quite an alarming issue,” says Bo Zhuang, a China economist at London research firm Trusted Sources. “The government is trying very hard to slow down the pace of the leveraging up, but they are not deleveraging. The debt-to-GDP ratio will continue to go up.”
China’s economy expanded 7% in the three months through June from a year earlier, the National Bureau of Statistics said Wednesday, unchanged from the first quarter and beating economists’ estimates of 6.8%. Corporate and household borrowing rose 12% in June from a year earlier. China went on an unprecedented borrowing binge following the 2008 global financial crisis and has been struggling to clean it up ever since. Rising debt will keep slowing the country’s growth, according to Ruchir Sharma at Morgan Stanley

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Do we even want to know?

China Stock Suspensions Opens Can Of Derivatives Worms (Reuters)

The suspension of hundreds of mainland China stocks during a market plunge from mid-June could lead to disputes between banks and their clients over the valuation of billions of dollars of equity derivatives. Banks dealing in derivatives are concerned that valuation terms covering market disruptions in other Asian markets, such as trading halts when stocks move up or down by the exchange’s daily range limits, might not apply to the wave of stock suspensions in China. As China’s stocks tumbled by 30 percent in less than a month, around 1,500 listed companies, more than half the market, suspended their own stocks in a bid to sit out the rout.

“It’s not yet clear if the existing disruption event language for other Asian jurisdictions can be applied to China or how the existing disruption definitions for limit-up, limit-down would apply to suspended stocks,” said Keith Noyes, regional director, Asia Pacific, at the International Swaps and Derivatives Association (ISDA), which represents the world’s largest derivatives dealers. Noyes and an in-house lawyer at a major Asian dealer said banks were reviewing the issue. “There could be wrangling over issues such as whether the Shanghai composite index closing price, which would generally be the easiest to use to value contracts, is a good price or a disrupted price, given that so many stocks are now suspended,” said Noyes.

Dealers have written at least $150 billion of outstanding over-the-counter (OTC) equity derivatives on mainland-listed shares, according to estimates by Shanghai-based investment consultancy Z-Ben Advisors. When drawing-up such instruments, most dealers draw on ISDA standard definitions as a basis for valuing equity derivative positions when the underlying stock market is disrupted. The language was drawn up in 2008 following disruptions in the South Korean and Taiwan markets, when China’s markets were all but closed to outside investors, and applies to a number of Asian markets, including Taiwan, South Korea, Singapore, and Hong Kong, but not mainland China. Noyes said the dealer community may need to reach an agreement on whether it could be extended to China to help more easily resolve disputes.

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Major shuffle coming?!

Greek Lawmakers Pass Austerity Bill Despite Strong SYRIZA Dissent (Kathimerini)

Greek Parliament passed the prior actions demanded by lenders to pave the way for bridge financing and a third bailout in a vote during the early hours of Thursday morning. A total of 229 MPs voted for the measures, 64 voted against, six voted present and one was absent. Prime Minister Alexis Tsipras saw 32 of his MPs vote against the measures, while another six abstained. All of the deputies from coalition partner Independent Greeks backed the legislation. This means that the number of coalition lawmakers supporting the bill remained above the 120-mark, which is the level below which the government is considered not to have a mandate to continue.

Before the vote, Tsipras said the agreement with lenders was the only viable option open to him and challenged rebels within his party to propose a better one. In his speech before Parliament, Finance Minister Euclid Tsakalotos sought to defend Greece’s agreement with creditors as a necessary evil. “It’s a difficult agreement, a deal which only time will show if it is economically viable,” he said. “I don’t know if we did the right thing, but I know we felt we had no choice,” he said. “We never said this was a good agreement,” he added, noting that “a lot will depend on how politicians will handle the many changes included in the agreement.”

Economy Minister Giorgos Stathakis, for his part, declared that “these are moments for responsibility,” noting that everyone “must state clearly where they stand on Greece’s dilemma. The government received a half-finished second bailout which was frozen and was confronted by non-viable system,” he said. SYRIZA’s parliamentary spokesman Nikos Filis accused eurozone officials of executing a “coup” at a summit in Brussels on Monday when the agreement was reached. Their aim, he said, was “to topple the Greek government, to give the message that a leftist administration cannot survive in Europe.”

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“The lesson that they will draw from this debacle is: negotiating with Germany is a waste of time; be willing to act unilaterally, be willing to default unilaterally, have a plan for achieving a primary surplus if you haven’t already achieved it, have a hard default and euro exit option in your back pocket, and be willing to use it at the first sign of hassle from the ECB,”

EMU Brutality In Greece Has Destroyed The Trust Of Europe’s Left (AEP)

The EU establishment henceforth faces what it has always feared: a political war on two fronts at once. It is long been fighting an expanding coaltion of free marketeers, parliamentary “souverainistes”, anti-immigrant populists on the Right. Its has now lost its remaining emotional hold on the Left after the scorched-earth treatment of Greece over the past five months – culminating in the vindictive decision to impose yet harsher terms on this crushed nation just days after its cri de coeur in a landslide referendum.
This has been coming for a long time. We Conservatives have watched in disbelief as one Socialist party after another immolates itself on the altar of monetary union, defending a project that favours the elites – a “bankers’ ramp”, as the old Left used to call it.

We have watched our friends on the Left apologise for 1930s policies. We have seen them defend a regime of pro-cyclical fiscal cuts imposed on the whole eurozone by a handful of “Ordoliberal” reactionaries in the German finance minstry. To the extent that these gentlemen know what they are doing – and most Nobel economists would dispute that – they have certainly not risen to the challenge of pan-EMU leadership. As ex-official Philippe Legrain writes in Foreign Policy, Germany is proving to be a “calamitous hegemon”. By a twist of fate, the Left has let itself become the enforcer of an economic structure that has led to levels of unemployment once unthinkable for a post-war social democratic government with its own currency and sovereign instruments.

It has somehow found ways to justify a youth jobless rate still running at 42pc in Italy, 49pc in Spain and 50pc in Greece, despite mass emigration. It has acquiesced in the Long Slump of the past six years, deeper in aggregate than the span from 1929 to 1935. It meekly endorsed the EU Fiscal Compact, knowing that it imposes a legal requirement on eurozone states to slash their public debt by 1.5pc of GDP in France, 2pc in Spain and 3.5pc in Italy and Portugal, every year for the next two decades – a formula for near permanent depression. It outlaws Keynesian economics, and indeed classical economics. It is a doomsday construct. This is what they agreed to, and what they have reluctantly defended, because until now they dared not question the sanctity of EMU.

And so the once mighty Dutch Labour Party has been reduced to a pitiful relic. Pasok has been obliterated in Greece. The Spanish Socialist Workers’ Party has lost its left-wing to the rebel Podemos movement, freshly victorious in Barcelona. France’s Socialist leader, Francois Hollande, has been languishing at 24pc in the polls as the French working class defects to the Front National. Yet events in Greece have finally broken the spell. “Progressives should be appalled by EU’s ruination of Greece. It’s time to reclaim the Eurosceptic cause,” writes Owen Jones in a remarkable piece in The Guardian. The new term “Lexit” is gaining currency. The voices of Left are uneasy. Their instincts are to oppose everything that UKIP stands for. “At first, only a few dipped their toes in the water; then others, hesitantly, followed their lead, all the time looking at each other for reassurance,” Mr Jones writes.

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Perhaps “Leftit” is a better term. And not just in Britain.

Lexit: The Left Must Now Campaign To Leave The EU (Guardian)

At first, only a few dipped their toes in the water; then others, hesitantly, followed their lead, all the time looking at each other for reassurance. As austerity-ravaged Greece was placed under what Yanis Varoufakis terms a “postmodern occupation”, its sovereignty overturned and compelled to implement more of the policies that have achieved nothing but economic ruin, Britain’s left is turning against the European Union, and fast. “Everything good about the EU is in retreat; everything bad is on the rampage,” writes George Monbiot, explaining his about-turn. “All my life I’ve been pro-Europe,” says Caitlin Moran, “but seeing how Germany is treating Greece, I am finding it increasingly distasteful.” Nick Cohen believes the EU is being portrayed “with some truth, as a cruel, fanatical and stupid institution”.

“How can the left support what is being done?” asks Suzanne Moore. “The European ‘Union’. Not in my name.” There are senior Labour figures in Westminster and Holyrood privately moving to an “out” position too. The list goes on, and it is growing. The more leftwing opponents of the EU come out, the more momentum will gather pace and gain critical mass. For those of us on the left who have always been critical of the EU, it has felt like a lonely crusade. But left support for withdrawal – “Lexit”, if you like – is not new. If anything, this new wave of left Euroscepticism represents a reawakening. Much of the left campaigned against entering the European Economic Community when Margaret Thatcher and the like campaigned for membership.

It would threaten the ability of leftwing governments to implement policies, people like my parents thought, and would forbid the sort of industrial activism needed to protect domestic industries. But then Thatcherism happened, and an increasingly battered and demoralised left began to believe that the only hope of progressive legislation was via Brussels. The misery of the left was, in the 1980s, matched by the triumphalism of the free marketeers, who had transformed Britain beyond many of their wildest ambitions, and began to balk at the restraints put on their dreams by the European project.

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“The real disaster is if everything stays as it is..”

There’s No End In Sight To The Greco-European Drama (Guardian)

The last act of the classical Greek tragedy ends with two outcomes: disaster and catharsis. In the current Greek debt drama, however, there has been no catharsis. The purification has failed to materialise. It would have meant that both sides had seen the error of their ways and come to their senses. Instead, the madness continues: Greece will take on €86bn of debt in addition to the existing €317bn (not including the emergency loans from the ECB). From Angela Merkel through François Hollande to Alexis Tsipras, all eurozone government leaders assert that Greece will emerge from over-indebtedness more quickly this way and will be economically healed in three years. Europe pretends that the bailout will help. And Greece acts as if everything is fine now.

The Brussels summit was not a disaster, though. Greece does not fall into chaos and the euro remains stable. Maybe Walter Benjamin, who once said: “The real disaster is if everything stays as it is,” was right. When it comes to classical drama, it seems we have not reached the final act after all. The fourth act, the “retardation”, continues. The action is slowing down, with suspensory moments: the troika returns to Athens and monitors the situation, while the Greek authorities delay and tinker about again. Until the action moves into a phase of extreme tension towards the finale. When will that be? Merkel hopes it will be after the next parliamentary elections.

For the Greeks, there is more at stake in this drama than there is for the Germans. The Germans will lose a lot of money at the most. The Greeks, however, have long since come under the tutelage of the donors. What Tsipras signed on Monday is the permanent abandonment of Greek sovereignty. Athens will be told what budget surplus it must achieve and what taxes it should raise. Fiscal sovereignty is broken. The constitution will be interfered with to impose pension cuts. The administration and judiciary must be rebuilt according to the standards of the northerners. It is not about a bailout loan, but it is avowedly about nation building, as if Greece were a failed state. Even the IMF has condemned the deal as unworkable and said the levels of debt are unsustainable.

Greek culture is being encroached upon in every way. The Sunday opening of shops is being enforced, whether the still strongly religious population likes it or not. Consumption is more important than orthodox religion – that is the credo of the north. In international law the internal affairs of a nation are largely taboo; in the euro protectorate there are no taboos.

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And more than once.

Shock Announcement From IMF Reveals Greece Was Duped by Europe (EI)

The IMF has fiercely criticised the bailout deal offered to Greece by the Eurozone, revealing that the Eurogroup of finance ministers had ignored its advice when negotiating with Greece over the weekend. In a communique released last night, the IMF said Greece’s public debt was now “highly unsustainable” before concluding: “Greece’s debt can now only be made sustainable through debt relief measures that go far beyond what Europe has been willing to consider so far.” It now appears that the deal, rather than seeking to help the Greek economy, was designed principally to teach Greece a lesson and remove Syriza from power. Today the Greek parliament votes on whether to accept the austerity deal that it was bullied into over the weekend during negotiations dominated by Germany.

Certainly, the IMF bombshell is likely to stiffen the resolve of the those Syriza MPs such as Papas Lapavitsas, an economics Professor from the School of African and Asian Studies (SOAS) in London, who have long argued that a Greek exit from the euro is the only realistic choice open to revive the Greek economy. He’s previously outlined these ideas in articles he has written for the Guardian and for ThePressProject. Regardless of the immediate outcome of the vote, the whole drama has weakened transparency and democracy in Europe. The euro project is now clearly seen as a failing project and its eventual break-up appears inevitable to many. The only questions remains when and how exactly it will occur.

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“I don’t take hostages I’m not willing to shoot..”

The EU Shot Its Greek Hostage, Now Spain Is Nervous (Fiscal Times)

In a battle over banking regulation at the end of the Clinton administration, former Republican Sen. Phil Gramm of Texas remarked on the importance of being willing to inflict pain when negotiations don t go your way. “I don’t take hostages I’m not willing to shoot”, Gramm explained. The point Gramm was making is that once you demonstrate that you don’t make idle threats, future negotiations are easier. The treatment of Greece by its European creditors may have had a similar effect. In Spain, which is even more indebted than Greece, the leftist Podemos Party has been gaining influence, in part by making promises in line with those made by Greece’s Syriza Party. In May, Pablo Iglesias, the leader of Podemos, demanded that Spain’s debt be restructured and that debt payments be tied to economic growth.

“For Spain to be able to meet its international obligations, we have to link debt payments to economic growth and expansive job creation policies”, he said. A similar argument had been made by former Greek finance minister Yanis Varoufakis, who so aggravated his European counterparts that he was eventually replaced. The reaction of Podemos to the punishing deal to enable another Greek bailout was telling. After battling to the bitter end, Syriza was forced to accept a humiliating offer from its creditors. In a deal primarily driven by Germany and other northern European countries, Greeks face pension cuts, huge tax increases, reduced services, and the forced sale of $50 billion worth of the country s physical assets.

In Madrid on Tuesday, it was as though the Eurogroup, fresh from dealing with Greece, had turned to Spain with smoking gun in hand and asked, “What were you saying”? The answer from Podemos top economic policy officer, Nacho Alvarez, was essentially, “Who, me? Nothing. Nothing at all.” Speaking to reporters, Alvarez said that debt restructuring wasn t really necessary after all. ‘Spain, he said, is not Greece’. Or so he must fervently hope. “Greece and Spain are different economies in very different situations which demand different economic strategies”, Alvarez said at a press conference. He added, “Podemos and Syriza have different economic approaches and said that he is confident the country’s current programs to stimulate economic growth will allow it to manage its debts.

Whether Podemos has detected a significant shift in the country s economic future over the last two months or has had a change of heart more related to the Eurogroup s treatment of Greece is up for debate. However, if part of the aim of Greece’s creditors was to punish Syriza pour encourager les autres, there seems to be little room for debate at all. It worked. In the near term, at least, it worked.

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Defaults come in clusters.

Greece’s Lessons for an Indebted World (WSJ)

Sovereign defaults are like cockroaches: There’s seldom just one. Greece’s debts are so high, its recession so deep and its economy so uncompetitive, it’s easy to play down the lessons it offers to the rest of the world. But while Greece is exceptional, the entire world is suffering from an overhang of debt. Since 2007, public debt in advanced economies (including national, state and local governments) has risen by 35 percentage points of total economic output, according to the McKinsey Global Institute. In many countries it has risen by far more: 47 points in Italy, 50 in Britain, 63 in Japan, 83 in Portugal. A country can shed such steep debt several ways: via austerity, economic growth and low real (that is, inflation-adjusted) interest rates.

More common than appreciated, though, is the more radical step of restructuring debt by reducing interest, lengthening the maturity or slashing the amount owed. “Will Greece be the last sovereign debt restructuring of this cycle? No,” says Susan Lund of McKinsey. “Look around the world and you can see other countries with very toxic combinations of high debt and low growth.” In their 2009 history of financial crises, Harvard University economists Carmen Reinhart and Kenneth Rogoff observe that “country defaults tend to come in clusters.” In the 1930s, the Great Depression triggered defaults throughout Europe and Latin America. In the 1980s, plunging commodity prices triggered a wave of defaults by emerging economies that had borrowed heavily from Western banks.

Noteworthy defaults this time around have been rare: they include Greece, Cyprus and Argentina (the latter linked to its prior-decade restructuring). The quietude is unlikely to last. Ukraine is now seeking to restructure its debts to private investors, as is Puerto Rico (which, to be sure, is not a sovereign country). Opposition politicians in Ireland, Spain and Italy have in the past pressed to restructure some of those countries’ debts, which according to McKinsey stood last year at 115%, 132% and 139% of gross domestic product, respectively.

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“The euro system today is an instrument in the hands of European capital to roll back the gains of social democracy.”

13 Short Lessons From The Greek Crisis (J.W. Mason)

The deal, obviously it looks bad. No sense in spinning: It’s unconditional surrender. It is bad. There’s no shortage of writing about how we got here. I do think that we — in the US and elsewhere — should resist the urge to criticize the Syriza government, even for what may seem, to us, like obvious mistakes. The difficulty of taking a position in opposition to “Europe” should not be underestimated. It’s one of the ironies of history that the prestige of social democracy, earned through genuine victories by and for working people, is now one of the most powerful weapons in the hands of those who would destroy it. Personally I don’t think I can be a useful contributor to the debate about Syriza’s strategy. But we also need to understand the economic logic of the situation. So, 13 theses on the Greek crisis and the crisis next time. These points are meant as starting points for further discussion. I will try to write about each of them in more detail, as I have time.

1. The euro system today is an instrument in the hands of European capital to roll back the gains of social democracy. On twitter, Marshall Steinbaum says, “That is why everyone supports the euro: as a route around their domestic political difficulties, ie, voting.” I think that’s right, I think the overriding goal of the system today is to create a set of apparently objective constraints that allow elected governments to take unpopular measures while saying “we had no choice, the markets require it.” I’ve written about this here and here.

2. A great myth of the euro is that it’s been good for Germans. It’s a puzzle, the kind of story that calls for dialectics, that Germany has both Europe’s strongest working class and most advanced social democracy, and its most rigidly conservative elite. For a while those forces were roughly balanced, but over the past generation German workers have done the worst, absolutely and relatively, of any country in Europe. The north-south divide in Europe perhaps analogizes to the racial divide in the US, so perhaps the same slogans apply: Black and white, unite and fight!

3. The euro is not a new gold standard. This is a tricky one — I feel a clear vision here requires one to first see how the euro is a new gold standard, and only then seeing how it isn’t one after all. Despite the dreams of its supporters (and fears of its opponents) the euro system does not provide an automatic constraint on the choices of elected governments. In the abstract, it looks more like Keynes’ proposals at Bretton Woods. Its actual functioning as the enforcement mechanism of neoliberalism, requires the active intervention of the authorities.

4. The ECB is a political actor. You may think that the ECB has violated the norms of independent central banks, or you may think it has revealed their true content. But either way it is actively intervening in the political process to reshape society in fundamental ways, not just following a set of objective rules to fulfill a narrow technical function. It was already evident several years ago that the ECB was selectively withholding support from financial markets to put pressure on elected officials, and now it is undeniable.

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Brutally honest. Yanis voted NO last night. Can he stay on as MP?

The Euro-Summit ‘Agreement’ on Greece – Annotated (Yanis Varoufakis)

The Euro Summit statement (or Terms of Greece’s Surrender – as it will go down in history) follows, annotated by yours truly. The original text is untouched with my notes confined to square brackets (and in red). Read and weep…

Euro Summit Statement Brussels, 12 July 2015

The Euro Summit stresses the crucial need to rebuild trust with the Greek authorities [i.e. the Greek government must introduce new stringent austerity directed at the weakest Greeks that have already suffered grossly] as a pre- requisite for a possible future agreement on a new ESM programme [i.e. for a new extend-and-pretend loan].

In this context, the ownership by the Greek authorities is key [i.e. the Syriza government must sign a declaration of having defected to the troika’s ‘logic’], and successful implementation should follow policy commitments.

A euro area Member State requesting financial assistance from the ESM is expected to address, wherever possible, a similar request to the IMF This is a precondition for the Eurogroup to agree on a new ESM programme. Therefore Greece will request continued IMF support (monitoring and financing) from March 2016 [i.e. Berlin continues to believe that the Commission cannot be trusted to ‘police’ Europe’s own ‘bailout’ programs].

Given the need to rebuild trust with Greece, the Euro Summit welcomes the commitments of the Greek authorities to legislate without delay a first set of measures [i.e. Greece must subject itself to fiscal waterboarding, even before any financing is offered].

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“Perhaps Hell is full of creditors who failed to fit through the eye of a needle..”

I Love Germany. And Greece. And Especially Finland. (Waldman)

If you are sympathetic to Greece and therefore mad at Germany, you are a sucker. If you think the Greeks are lazier and more dishonest than is usual in the human species, you are also a sucker, and have let a political framing cajole you into bigotry. If you think Germans are unusually cruel, you have also let politics make a bigot of you. If you are taking sides in a conflict framed as nation versus nation, you have already taken the wrong side. You’ve made a basic error, like picking a day when a tricky prosecutor asks whether you committed the murder yesterday or last Thursday. (I presume your innocence.)

You can usually find evidence in support of lots of different narratives. Hypotheses of human affairs are not in general mutually exclusive. Many different stories can in some sense be true. Among those in-some-sense-true narratives, we should choose to emphasize those whose application will lead to better social outcomes over other potentially defensible narratives. That’s why I frequently argue that we should emphasize the role of creditors rather than debtors when lending arrangements go bad. I am not making a claim about God’s view of the subject. Perhaps Hell is a debtors’ prison, and there is truly no greater evil than failing to repay a loan. Perhaps Hell is full of creditors who failed to fit through the eye of a needle. These questions are, I think, beyond the sort of knowledge that should inform policy.

What is clear is that unserviceable debt arrangements, when they accumulate, are enormously costly in human and economic terms, and so we need norms and institutions to regulate credit extension. My view, which I think almost anyone with a passing familiarity with the human species would have to concede, is that people under financial stress make decisions with a view to a shorter-term time horizon and with less capacity to be fastidious than people who have already financed their own immediate term. That is why I argue that we should emphasize norms that hold creditors accountable more than norms that hold debtors accountable. Creditors as a class are capable of regulating the initiation of debt arrangements at lower cost and with greater effectiveness that debtors are.

If we want societies that yield good outcomes, then, we should impose a heavy regulatory burden on creditors, and we must choose moral narratives consistent with that. Perhaps the very worst moral narratives in all of human history are those that allocate blame on the basis of tribal, ethnic, or national groups. There is just never, ever, any sufficient reason to go there in my view. It is perfectly reasonable to hold leaders and governments accountable, as well as the institutional embodiments of interest groups. This is not because leaders individually are worse people than members of the public who may agree with their decisions. I carry no water for fairy tales about the inherent virtue of ordinary folk.

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Shouldn’t be so hard, you know what to do.

IMF Chief: Greek Bailout Talks a ‘Colossal’ Challenge Going Forward (WSJ)

IMF chief Christine Lagarde said she still had hope the eurozone would provide Greece with a substantial restructuring of the country’s debt, but warned of difficult negotiations as officials seek to complete a bailout deal in the weeks ahead. Ms. Lagarde’s comments come a day after the fund warned in a report that Greece needed much more debt relief than European officials have so far considered—an apparent effort to pressure Germany into concrete commitments on debt restructuring. Normally, the fund reserves its most honest assessments for secret, high-level meetings.

But by taking the highly unusual step of making public its bleak appraisals of Greece’s economy, Ms. Lagarde and her lieutenants are drawing a red line for the eurozone: Agree to substantial debt relief or lose the fund’s support and risk a Greek exit from the eurozone. “What I very much hope is that we can all keep to a very tight timetable and we can respond to a challenge that is colossal,” Ms. Lagarde said in an interview on CNN on Wednesday. The debt-restructuring commitments will be key as Athens tries to sell a bailout program that Greece’s voters have already rejected in a recent referendum.

The IMF and its largest shareholder, the U.S., worry that without such a commitment the government won’t be able to persuade the public or parliament to support the major budget cuts and economic overhauls creditors say are vital for the country’s financial salvation. “Up until a few months ago, our partners didn’t discuss the issue of debt restructuring,” said Finance Minister Euclid Tsakalotos. Still, he said it was “too early to judge this deal.” “We will be able to see when talks wind up in 30 to 40 days when we have the final agreement. Then we can all judge it with seriousness for the good of the country,” Mr. Tsakalotos said.

Read more …

“The eventual implosion of the European Union, and the banking system hugging its face vampire squid style, will be the financial equivalent of the Black Death..”

Greek Pudding (Jim Kunstler)

The proof of the pudding is in the eating, the old saw goes. This one, alas, is a mélange of several old shit sandwiches bound in a liaison of subterfuge and seasoned with political absurdities. Having been fooled in this bistro before, citizen-patrons leave the table resigned to yet another bout of food poisoning as the music of universal upchuck rings across the European Union from Helsinki to Lisbon What is on display more brightly and clearly than ever, though, is the utter fakery of international banking. The players have lost faith in their own shenanigans. They simply go through the motions now awaiting the political fallout, which is to say the revolt of the people who can still do arithmetic. So, now Greece can supposedly expect another $90Billion-equivalent in new loans on top of the $350Billion-equivalent already racked up.

That’s rich. The loan repayment schedule must look like a map of Middle Earth. Most perplexing — especially for those on summer hiatus in which time seems to be suspended — is the fact that the rescue package will take weeks, perhaps months, to gin up while Greece is right now so utterly paralyzed in bankruptcy that no goods can move, no bills can be paid, and the economy cannot deliver the necessities of daily life. The old refrain, “your check is in the mail” may not be so reassuring to folks who haven’t eaten for three days. Personally, I would expect the gasoline bombs to be flying around Syntagma Square before the middle of the week.

Has anyone noticed the eerie paucity of news emanating from the other hard-luck nations of the EU, namely Spain, Portugal, Italy, and Ireland? The money hole that these deadbeats are in makes Greece look like a dimple in the sand. What, I wonder, is the message to them from the Greek negotiation melodrama? (Lend more money to real estate developers to build more houses and condos that will never be sold? That’ll work!) No, the entire EU debt fiasco harks back to the original meaning of “ring around the rosie” — a theme song of the Black Death. The eventual implosion of the European Union, and the banking system hugging its face vampire squid style, will be the financial equivalent of the Black Death. Kingdoms will fall and social systems will be turned upside down.

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“The idea of giving private banks a monopoly over money creation goes back to seventeenth century England.”

What’s Wrong with Our Monetary System and How to Fix It (Kuzminski)

Something’s profoundly wrong with our global financial system. Pope Francis is only the latest to raise the alarm: “Human beings and nature must not be at the service of money. Let us say no to an economy of exclusion and inequality, where money rules, rather than service. That economy kills. That economy excludes. That economy destroys Mother Earth.” What the Pope calls “an economy of exclusion and inequality, where money rules” is widely evident. What is not so clear is how we got into this situation, and what to do about it. Most people take our monetary system for granted, and are shocked to learn that the government doesn’t issue our money. Almost all of it is created by loans made “out of thin air” as bookkeeping entries by private banks.

For this sleight-of-hand, they charge interest, making a tidy profit for doing essentially nothing. The currency printed by the government – coins and bills – is a negligible amount by comparison. The idea of giving private banks a monopoly over money creation goes back to seventeenth century England. The British government, in a Faustian bargain, agreed to allow a group of private bankers to assume the national debt as collateral for the issuance of loans, confident that the state would be able to service the debt on the backs of taxpayers. And so it has been ever since. Alexander Hamilton much admired this scheme, which he called “the English system,” and he and his successors were finally able to establish it in the United States, and subsequently most of the world.

But money is too important to be left to the bankers. There is no good reason to give any private group a lucrative monopoly over the creation of money; money creation should be the public service most people mistakenly believe it to be. Further, privatized money creation allows a few large banks and financial institutions not only to profit by simply making bookkeeping entries, but to direct overall investment in the economy to their corporate cronies, not the public at large. Ordinary people can get the financing they need only on burdensome if not ruinous terms, leaving them as debt peons weighed down by mortgages, student loans, auto loans, credit card balances, etc. The interest payments extracted from these loans feed the private investment machine of Wall Street finance, represented by the ultimate creditor class: the notorious “one percenters.”

Read more …

Not looking good down under.

Kiwi Dollar Falls As Dairy Prices Plunge At Latest Auction (NZ Herald)

The latest GlobalDairyTrade auction was another shocker, the GDT price index dropping by 10.7% from the last sale a fortnight ago and with wholemilk powder prices registering their biggest fall in 12 months Whole milk powder – which is responsible for about 75% of Fonterra’s farmgate milk price – fell in price by 13.1% to US$1,848 a tonne to its lowest level in six years. Fonterra’s current milk price forecast of $5.25 per kg of milksolids for 2015/16 is based on GDT prices reaching about US$3500 a tonne towards the end of this season. Dairy NZ estimates $5.70 a kg to be the breakeven point for most farmers. AgriHQ dairy analyst Susan Kilsby said the auction result was “disastrous”.

“Farmers now face two consecutive seasons of extremely low milk prices,” she said in a commentary. “The majority of farmers can’t breakeven at such a low milk price.” Economists estimate a $1/kg drop in the milk price equates to about $2 billion less income for dairy farmers. “Farm debt levels will rise. Rural communities will suffer as farmers reduce spending to the bare essentials,” Kilsby said. AgriHQ’s theoretical 2015-16 farmgate milk price has decreased to $4.22 per kg milksolids – down 83c on a fortnight ago and $1.27 lower than a month ago. The dairy auction result was responsible for taking around 40 pips off the Kiwi dollar, and the NZ/Australian dollar cross rate dropped to below A89.50c.

Read more …

Jun 302015
 
 June 30, 2015  Posted by at 9:01 pm Finance Tagged with: , , , , , , ,  12 Responses »
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Unknown Soldier group, Federal Army 1865

I have plenty to say on the topic of this essay. But the most important thing I think is that I know the EU is blowing up itself by trying to exert far too much influence on the very member nations that made its existence possible. Brussels is a blind city. To see it blowing itself to smithereens makes me very happy.

The flipside is that it will take a lot of pain, and probably even the very wars the EU was originally founded to prevent, to figuratively burn it to the ground. But that, if you’ll alow me, is for another day:

Loads of good words published today on EC President Jean-Claude Juncker and the Greeks, and the crop gets creamier, there’s fake Nobles winners and all joining in, but this is not a new issue, guys, and the lot of you are quite late to the game.

Moreover, y’all Krugmans and Stiglitzes fully missed something that happened while Juncker was ‘speaking’ yesterday: Jean-Claude changed the entire game in one brilliant move. The Greeks I was with, including in Syntagma Square, didn’t notice it either.

What changed is that after Juncker’s speech, the discussion is no longer about data or numbers or facts anymore (but who understands that?), because he never mentioned them.

It’s instead now about fear and fight and flight and various other base instincts, you name them. And that’s not a coincidence. The reason he, and the EU as a whole, resort to this ‘message’ (and no, these guys’ spin teams are not stupid) is to a substantial extent that it’s simply all they have left.

Whatever they had to present in the way of numbers, data etc. has already been rejected by the Greek government 100 times. Since their data have since the start been diametrically opposed to what Syriza stands for and was elected on, which they knew, that should be no surprise, and indeed never was for the Troika.

If you saw Juncker yesterday, and it doesn’t even matter whether he was inebriated or not (does he perhaps wake up drunk, like Yeltsin?), accusing Tsipras of lying -for which he offered no proof- while telling big fat obvious lies himself (“we never asked for pension cuts”) -for which ample proof to the contrary is available-, y’all should realize that a bit more scrutiny of the man is obviously warranted.

I’ve written this story a hundred different times before already: the EU is an organization led by people with, let’s define this subtly and carefully, sociopathic traits (Antisocial Personality Disorder), simply because the EU structure self-selects for such people. As do all other supra-national organizations, and quite a few national ones too, but let’s stick with Brussels for now.

That such people are selected is due in great part to the less than transparent democratic acts and procedures in Brussels. Which allow for ever larger numbers of the same ‘sort’ of people to accumulate. No coincidence there either.

Many of you will say that you can’t say that kind of thing, you can’t call Juncker a sociopath. But the fact is, I can. Who can not say it are Tsipras and Varoufakis, not in public. But I wouldn’t even want to guess at the number of times they’ve done so in private. And it’s high time we lift the veil on this. We are being governed by sociopaths, and that’s by no means just a European thing.

And besides, in general it’s not something that we should refrain from talking about. The reason we do is, I bet you, is because we don’t know how to recognize the traits and characteristics. But in fact, that’s not hard. Just plucked this off the interwebs in 2 seconds flat:


Profile of the Sociopath
• Glibness and Superficial Charm.
• Manipulative and Conning.
• Never recognize rights of others, see their self-serving behaviors as permissible. …
• Grandiose Sense of Self. …
• Pathological Lying. …
• Lack of Remorse, Shame or Guilt. …
• Shallow Emotions. …
• Incapacity for Love, Compassion
• Need for Stimulation.

Anyone want to tell me that does not describe Juncker? Still, the big problem with sociopaths -and do note how I subtly steer away from the term psychopath- is that you can not have an effective negotiation with them. Because once you’ve reached a conclusion -which’ll be hard fought and take forever-, they’ll just renege on it and come back with additional conditions. And then claim you are the one who did that.

Check Juncker. Check the 5 month history of Greece negotiations with the Troika. And note that that’s exactly what they accuse Syriza of. They claim Tsipras suffers from the very disorder they do. That too is typical. It’s a pattern, an MO, it’s how these minds function.

The main one for me is the lack on empathy, compassion. That got 1000s killed in Ukraine, and in the Mediterranean, and now in Greece. All deathly dramas Brussels could have prevented, and chose not to. In Brussels and Berlin, it’s more important that countries toe the line than that their citizens actually survive.

Europe has moved, at a very rapid clip, from a union of 28 different sovereign states, each with their own governments and political views and directions, to one where a top heavy bureaucratic structure, hand-puppeted on by a mere handful member states and systemic banks, dictate what each member state, both its politicians and its citizens, may do or not do. Or think. Electing a left wing government, for instance, equals asking for trouble.

There is no democracy left in Europe, people have no direct say anymore, there’s just a two-pronged dictatorship: there’s Merkel and Hollande, who in the Greek crisis have proven themselves to be mere tools to vested interests, and I’m being extremely kind now, and there’s Juncker and Tusk and Dieselflower, who are really just inconsequential sociopathic wankers that could at any moment be replaced by other hammers and screwdrivers.

In that light, it can only be a fitting irony that it was Juncker in his speech yesterday who said:

“Playing off one democracy against 18 others is not an attitude which is fitting for the great Greek nation.”.

He could have easily followed up with:

Because that’s what we in Brussels have a monopoly on.”

The EU is a club led by people with mental disorders, that panders to special interests. It’s not a union of sovereign nations that hold meetings on how to find common ground. That common ground is now supposedly a given, and no matter what any nation thinks about that matters one bit anymore. Unless it’s Germany or France, and even then. The EU has superseded the nations that formed it. And that can never have been the idea of the people of these nations. As I started writing a few hours earlier today:

It won’t be a surprise anymore that I am not a fan of the European Union. That is to say, I like the idea but not the execution of it, and certainly not the clowns who execute it. However, what happened yesterday is something that even I couldn’t foresee. The Troika volunteered to self-immolate, though the three-headed beast is undoubtedly too full of hubris to understand what it did. Good.

Still, I’m looking at this, thinking: really guys? You really think deliberately sparking chaos in an EU member state on the eve of a democratic referendum is something that will help your case in the long term? Have you thought this through at all? I’m guessing the overriding notion is that threatening and bullying as a model has worked for Brussels so far; but I’m also guessing that the approach has its limits.

Like with many things, there may well be a gaping hole between what can be considered legally justified and what morally justified. But be that as it may, you can’t rule over 28 different sovereign nations with no morals whatsoever. That’s coming back to bite you in the face.

For the ECB to freeze ELA for Greek banks is the biggest blunder it has ever made, and arguably the biggest one it is capable of making in its present mandate. For one thing, it’s a purely political move, and the ECB has no place in politics, or politics inside the ECB.

That the Eurogroup added to the insult a refusal to grant Greece a one-week extension so preparations for the referendum could be executed in peace, tells us loud and clear what it thinks about democracy: it’s a mere afterthought.

Bullying sovereign nations gets old, fast. What you guys are at the moment doing to Greece, you won’t be able to repeat against Italy or Spain. They’ll have you for breakfast.

The EU, which is made up of 28 democratic and sovereign nations, is being run like some absolute kingdom, ostensibly led by a 24/7 drunk. How long do you think that can last?

The very minimum the ECB should have done thi week is to issue an explicit guarantee for all Greek bank deposits up to and including the July 5th referendum. To make sure there would be no bank runs and line ups at ATMs leading up to the vote, which merely represents the purest form of democracy. That is hasn’t speaks volumes. And it can’t possibly have been a monetary deliberation; what happens now is far more costly for the bank, and for European taxpayers, than such a guarantee.

I love that the EU does this, and the Troika with it, because they ensure their own demise. What I don’t like is the people who will fall victim in the interim, starting with the ones here in Greece. If this is the best the EU can do on a human scale, it has no reason to exist. And everyone better get out while they can.

Europe can form a great union, peaceful and prosperous and happy. It has many many wise and smart people who can make that work. But those people are not in Brusssels, where the decisions are being taken. And there’s a reason for that.