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Was Greece Set Up To Fail?

Jul 182015
 
 July 18, 2015  Posted by at 12:59 pm Finance Tagged with: , , , , , , , , ,  20 Responses »


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.

The Troika And The Five Families

Jul 132015
 
 July 13, 2015  Posted by at 2:26 pm Finance Tagged with: , , , ,  13 Responses »


Esther Bubley Watching parade to recruit civilian defense volunteers, Washington DC 1943

Personally, like most of you, I always thought Germany, besides all its other talents, good or bad, was a nation of solid calculus and accounting. Gründlichkeit. And that they knew a thing or two about psychology. But I stand corrected.

The Germans just made their biggest mistake in a long time (how about some 75 years) over the weekend. Now, when all you have to bring to a conversation slash negotiation is bullying and strong arming and brute force, that should perhaps not be overly surprising. But it’s a behemoth failure all by itself regardless.

First though, I want to switch to what Yanis Varoufakis told the New Statesman in an interview published today, because it’s crucial to what happened this weekend. Varoufakis talks about how he was pushing for a plan to introduce an alternative currency in Greece rather than giving in to the Troika. But Tsipras refused. And Yanis understands why:

“Varoufakis could not guarantee that a Grexit would work …

…[he] knows Tsipras has an obligation to “not let this country become a failed state”.

What this means is that Tsipras was told by the Troika behind closed doors, to put it crudely: “we’re going to kill your people”. He was made an offer he couldn’t refuse. And Tsipras could never take that upon himself, even though the deals now proposed will perhaps be worse in the medium to long term, even though it may cost him his career.

Criticism of the man is easy, but it all comes from people never put in that position. Varoufakis understands, and sort of hints he might have had second thoughts too if he were ever put in that position.

There’s not much that separates Schäuble and the EU from the five families that rule (used to rule?!) New York City. If you need proof of that, come to Athens and check out the devastated parts of the city. Germany and the Troika are as ruthless as the mob. Or, rather, they’re worse.

My point is, their attitude and antics will backfire. You can’t run a political and/or monetary union that way. And only fools would try.

The structure of the EU itself guarantees that Germany will always come out on top. But they can only stay on top by being lenient and above all fair, by letting the other countries share some of the loot.

To know how this works, watch Marlon Brando, as Don Corleone, talk to the heads of the five families in the Godfather. You need to know what to do to, as he puts it, “keep the peace”. He’s accepted as the top leader precisely because the other capos understand he knows how.

The Germans have shown that they don’t know this. And therefore, here comes a prediction, it’ll be all downhill from here for them. Germany’s period of -relative- economic strength effectively ended this weekend. The flaws in its economy will now be exposed, and the cracks will begin to show. If you want to be the godfather, the very first requirement is you need to be seen as fair. Or you will have no trust. And without trust you have nothing. It is not difficult.

Germany will never get a deal like the EU has been for them, again. It was the best deal ever. And now they blew it, and they have no-one to blame but themselves. And really, the Godfather metaphor is a very apt one, in more ways than one. Schäuble could never be the capo di tutti capi, no-one would ever trust him in that role. Because he’s not a fair man. But he still tries to play the role. Big mistake.

The people here in Greece are being forced to pay for years for something they were never a part of, and that they never profited from. The profits all went to a corrupt elite. And if there’s one thing Don Corleone could tell you, it’s that that’s a bad business model. Because it leads to war, to people being killed, to unrest, and all of that is bad for business.

I must admit, I thought the Germans were smarter than this. They’re not. That much is overly obvious now. No matter what happens next, deal or no deal on Greece, and that’s by no means a given yet, don’t let the headlines fool you, no matter what happens, Germany loses.

It’s not just about Greece, it’s about the whole EU. The Troika thinks that by scaring the living daylights out of the periphery, its power will increase. They even think it’ll work with France. Good luck with that. They’ll be facing Marine Le Pen soon, and Podemos, and M5S, and these antics will not work on them.

I guess the main thing here is that Don Corleone was not a psychopath or sociopath, and that’s more than you can say for Schäuble and Dijsselbloem and Juncker and their ilk. These people simply lack the social skills to lead any organization, because all they understand is power and force, and that is simply not enough. While brute force may look attractive and decisive and all, in the end it will be their undoing.

I’m sure the vast majority of them have seen the Godfather films, but they’ve just never understood what they depict; they don’t have the skillset for it.

Germany just killed its golden goose. And boy, is that ever stupid. They could have had -again, relative, we’re in a recession- peace and prosperity, and they’re blowing it all away.

Tsipras for obvious reasons cannot talk about the threats he’s been receiving, but he did give up some hints early this morning:

• “We took the responsibility for the decision to avert the most extreme plans by conservative circles in Europe..”

• “I promise you that as hard as we fought here, we will now fight at home, to finish the oligarchy which brought us to this state.”

• “We resisted demands for the transfer of state assets abroad and averted a banking collapse which had been meticulously planned.”

• “… decision to avert the most extreme plans by most extreme circles in Europe”

The Italians and Spanish and French have noted every word of this, and more. Europe as it is, is already over. Everything from here on in is a mere death rattle.

Tsipras Invites Schäuble To Fall Into His Own Sword

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


DPC On the beach, Coney Island 1907

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

With Yanis Gone, Now Troika Heads Must Roll

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

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

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

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

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

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

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

Someone Pull The Plug or This Will End in War

Jul 102015
 
 July 10, 2015  Posted by at 7:58 am Finance Tagged with: , , , , ,  21 Responses »


Unknown Petersburg, Virginia. Group of Company B, U.S. Engineer Battalion 1864

I was going to write up on the uselessness of Angela Merkel, given that she said on this week that “giving in to Greece could ‘blow apart’ the euro”, and it’s the 180º other way around; it’s the consistent refusal to allow any leniency towards the Greeks that is blowing the currency union to smithereens.

Merkel’s been such an abject failure, the fullblown lack of leadership, the addiction to her right wing backbenchers, no opinion that seems to be remotely her own. But I don’t think the topic by itself makes much sense anymore for an article. It’s high time to take a step back and oversee the entire failing euro and EU system.

Greece is stuck in Germany’s own internal squabbles, and that more than anything illustrates how broken the system is. It was never supposed to be like that. No European leader in their right mind would ever have signed up for that.

Reading up on daily events, and perhaps on the verge of an actual Greece deal, increasingly I’m thinking this has got to stop, guys, there is no basis for this. It makes no sense and it is no use. The mold is broken. The EU as a concept, as a model, has failed and is already a thing of the past.

It’s over. And anything that’s done from here on in will only serve to make things worse. We should learn to recognize such transitions, and act on them. Instead of clinging on to what we think might have been long after it no longer is.

Whatever anyone does now, it’ll all come back again. That’s guaranteed. So just don’t do it. Or rather, do the one thing that still makes any sense: Call a halt to the whole charade.

As for Greece: Just stop playing the game. It’s the only way for you not to lose it.

There’s no reason why European countries couldn’t live together, work together, but the EU structure makes it impossible for them to do just that, to do the very thing it was supposed to be designed for.

Germany runs insane surpluses with the rest of the EU, and it sees that as a sign of how great a country it is. But in the present structure, if one country runs such surpluses, others will need to run equally insane deficits.

Cue Greece. And Italy, Spain et al. William Hague for once was right about something when he said this week that the euro could only possibly have ended up as a burning building with no exits. This is going to lead to war.

Simple as that. It may take a while, and the present ‘leadership’ may be gone by then, but it will. Unless more people wake up than just the OXI voters here in Greece.

And the only reason for it to happen is if the present flock of petty little minds in Berlin, Paris, London and Brussels try to make it last as long as they can, and call for even more integration and centralization and all that stuff. The leaders are useless, the structure is painfully faulty, and the outcome is fully predictable.

Europe has no leadership, it has a varied but eerily similar bunch of people who crave the power they’ve been given, but lack the moral sturctures to deal with that power. Sociopaths. That’s what Brussels selects for.

And Brussels is by no means the only place in Europe that does that. What about people like Schäuble and Dijsselbloem, who see the misery in Greece and loudly bang the drum for more misery? What does that say about a man? And what does it say about the structure that allows them to do it? At times I feel like the Grapes of Wrath is being replayed here.

It’s nice and all to claim you’re right about something, but if your being right produces utter misery for millions of others, you’re still wrong.

Greece is not an abstract exercise in some textbook, and it’s not a computer game either. Greece is about real people getting hurt. And if you refuse to act to alleviate that hurt, that defines you as a sociopath.

Germany now, and it took ‘only’ 5 months, says Greece needs debt relief but it also says, through Schäuble: “There cannot be a haircut because it would infringe the system of the European Union.” That’s exactly my point. That’s silly. And looking around me here in Athens for the past few weeks, it’s criminally silly. You acknowledge what needs to be done, and at the same time you acknowledge the system doesn’t allow for what needs to be done. Time to change that system then. Or blow it up.

I don’t care what people like Merkel and Schäuble think or say, once people in a union go hungry and have no healthcare, you have to change the system, not hammer it down their throats even more. If you refuse to stand together, you can be sure you’ll fall apart.

Get a life. Greece should just default on the whole thing, and let Merkel and Hollande figure out the alleged Greek debt with their own domestic banking sectors. They’re the ones who received all the money that Greece is now trying to figure out a payback schedule for.

Problem with that is of course that very banking sector. They call the shots. The vested interests have far too much power on all levels. That’s the crux. But that’s also the purpose for which a shoddy construct like the EU exists in the first place. The more centralized politics are, the easier the whole thing is to manipulate and control. The more loopholes and cracks in the system, the more power there is for vested interests.

Steve Keen just sent a link to an article at Australia’s MacroBusiness, that goes through the entire list of new proposals from the Syriza government, and ends like this:

Tsipras Has Just Destroyed Greece

This is basically the same proposal as that was just rejected by the Greek people in the referendum. There are some headlines floating around about proposed debt restructuring as well but I can’t find them. This makes absolutely no sense. The Tsipras Government has just:
• renegotiated itself into the same position it was in two months ago;
• set massively false expectations with the Greek public;
• destroyed the Greek banking system, and
• destroyed what was left of Greek political capital in EU.

If this deal gets through the Greek Parliament, and it could given everyone other than the ruling party and Golden Dawn are in favour of austerity, then Greece has just destroyed itself to no purpose. Markets are drawing comfort from the roll over but how Tsipras can return home without being lynched by a mob is beyond me. And that raises the prospect of any deal being held immediately hostage to violence.

Yes, it’s still entirely possible that Tsipras submitted this last set of proposals knowing full well they won’t be accepted. But he’s already gone way too far in his concessions. This is an exercise in futility.

It’s time to acknowledge this is a road to nowhere. From where I’m sitting, Yanis Varoufakis has been the sole sane voice in this whole 5 month long B-movie. I think Yanis also conceded that it was no use trying to negotiate anything with the troika, and that that’s to a large extent why he left.

Yanis will be badly, badly needed for Greece going forward. They need someone to figure out where to go from here.

Just like Europe needs someone to figure out how to deconstruct Brussels without the use of heavy explosives. Because there are just two options here: either the EU will -more or less- peacefully fall apart, or it will violently blow apart.

Debt Rattle July 8 2015

Jul 082015
 
 July 8, 2015  Posted by at 10:56 am Finance Tagged with: , , , , , , ,  14 Responses »


G. G. Bain Asbury Park, Jersey Shore 1914

• Greece Files Formal Request For Eurozone Loan (Reuters)
• Why Greece May Have Already Won (CNN)
• [Chinese] People Are Selling Everything In Sight To Get Their Hands On Cash (BBG)
• China Stocks Hit Four-Month Lows On Panic Selling (Reuters)
• China Tries Japan’s Approach to a Stock Bubble (Pesek)
• Greece Debacle Is Only A ‘Minor Rehearsal’ For Coming Crash: Hague (DM)
• Greece ‘A Sideshow To China Meltdown’ (HuffPo)
• Europe Is Blowing Itself Apart Over Greece, Nobody Seems Able To Stop It (AEP)
• ECB Adds ‘Moral Hazard’ To Emergency Liquidity Assistance Rules (BBG)
• New Greek Finance Minister Is A Change Of Style, Not Substance (Reuters)
• Prominent Economists Urge Merkel To Change Course On Greek Crisis (Reuters)
• The Troika Is Politically Bankrupt (Monbiot)
• NY Times Urges the Troika to “Make an Example of Greece” (Bill Black)
• Austerity Is Not The Solution To The Greek Crisis (Callam Pickering)
• Lenders Give Greece Until Sunday To Avoid Grexit (AFP)
• Merkel’s Buttons (Yanis Varoufakis)
• Politics Always Trumps Economics (Ben Hunt)
• Greece creditors Will Gain Nothing From Toppling Europe-Lover Varoufakis (AEP)
• Washington Calls For Flexibility On Greece (Leigh)
• Want To Help Greece? Go There On Holiday (Alex Andreou)
• Steve Keen and Max Keiser (RT)

Can they refuse?

• Greece Files Formal Request For Eurozone Loan (Reuters)

Greece has lodged a formal request for a bailout loan with the eurozone’s special support fund, a spokesman for the European Stability Mechanism (ESM) said on Wednesday. “The ESM has received the Greek request,” he said. The Eurogroup of finance ministers is due to consider the application, which is formally addressed to its chairman Jeroen Dijsselbloem, in a conference call on Wednesday.

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Smart.

• Why Greece May Have Already Won (CNN)

As it careens from one crisis to the next, many see Greece – and its prime minister, Alexis Tsipras – as a rudderless ship heading aimlessly toward inevitable and total economic collapse. But the editor of a major German newspaper, Die Zeit, believes Tsipras’ “very clever game of chicken” will almost certainly pay off. German Chancellor Angela Merkel “knows she does not want to have a dead body on her hands – not in Europe, not in her Europe,” Josef Joffe told CNN’s Christiane Amanpour on Monday. “German threats, and everybody else’s threats, are not credible.” “There will be no Grexit, neither enforced nor voluntary,” Joffe said, using the shorthand term for a Greek exit from the eurozone.

“The simple reason, which many people don’t understand, is that even with a Grexit, Greece still remains in Europe, and therefore it will have access to all kinds of zillions of money. … The only thing that will change is the spigots where the money runs through.” Two days after Greeks overwhelmingly rejected the austerity inherent to Europe’s bailout offers, Tsipras will discuss the path forward with European leaders on Tuesday. There appears to be some splintering of resolve among the so-called “institutions”. French President Francois Hollande took a somewhat softer tone after meeting with Merkel in Paris on Monday, and the IMF has bucked the line by releasing a preliminary report last week that admitted Greece would likely need the debt relief its government is so desperately trying to get.

“They said, listen, boys and girls, Greece cannot pay,” Joffe said. “If the IMF tells you that, that’s a resounding victory for Tsipras.” European leaders – despite their, by varying degrees, hardline rhetoric – understand that the country will collapse without an injection of money, he said. “Merkel knows that; Hollande knows it; and, above all, who else knows this? Tsipras.” “He has told Europeans, ‘You know what? Come and punish us. You’ll punish yourselves even more. Do you really want to collapse your economy? Do you really want chaos in the streets? Do you want another storm on the Bastille? You don’t, do you?’ “Nobody wants to be in the position where he cuts his nose to spite his face. “And that’s why it is my considered bet that the Greeks have won this game of chicken. Wait a few days and you’ll see.”

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Panic.

• [Chinese] People Are Selling Everything In Sight To Get Their Hands On Cash (BBG)

Commodities traded in China are collapsing along with the country’s stock market. Raw materials from silver to lead and sugar to eggs fell to daily trading limits as the Shanghai Composite Index crashed to a three-month low Wednesday. A raft of measures to stabilize equities is failing to stop the bear-market rout in the country’s stock market, which had lured a record number of amateur investors and grown to become the world’s second-largest outside the U.S. “People are selling everything in sight to get their hands on cash,” Liu Xu, a trader at private asset-management company Guoyun Investment Co in Beijing, said by phone. “Some need to cover their margin calls in the stock market while others are gripped by fear that the Chinese economy will be affected by this crisis.”

Commodities prices globally this year have cooled, in part on slowing economic growth in China, the world’s largest consumer of energy, metals and grains. The Bloomberg Commodities Index, which tracks 22 raw materials, is down 7 percent so far this year. The gauge has lost 4.6% in the last three days, the most since 2011. Even as sentiment had soured on speculation demand is weakening, Wednesday’s sell off was fueled more by the rout in the country’s equity market, according to Ivan Szpakowski, a commodities strategist at Citigroup Inc. in Hong Kong. “It’s less commodity specific, and it’s not even reflective of a deterioration in economic growth or commodity demand,” Szpakowski said. “That’s not what we’re seeing. We’re seeing a deterioration in sentiment and a spillover from the equities market.”

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What a surprise, right?!

• China Stocks Hit Four-Month Lows On Panic Selling (Reuters)

China stocks tumbled to four-month lows on Wednesday as panicky investors dumped shares across the board, even as the government tried to unveil supportive measures throughout the day session to stop the plunge. To insulate themselves from the meltdown, more than 500 China-listed firms announced trading halts before the market opened, bringing the total number to around 1,300, almost half of China’s roughly 2,800 listed firms. “I’ve never seen this kind of slump before. I don’t think anyone has,” said Du Changchun, analyst at Northeast Securities. “Liquidity is totally depleted.” The CSI300 index of the largest listed companies in Shanghai and Shenzhen fell 6.8%, to 3,663.04, while the Shanghai Composite Index lost 5.9%, to 3,507.19 points.

In an unprecedented sign of desperation, all of China’s three futures index products for July delivery slumped by their 10% daily limit, meaning investors are extremely bearish on all type of stocks – small, mid, and big cap. Most blue chips, the target of government’s intensified purchases, saw previous session’s gains wiped out. Some analysts attributed the sell-off to share suspensions by a huge number of companies. “Given the suspension of stocks comprising a large part of the onshore markets, there are fewer stocks available to sell for those investors needing to meet their margin call requirements,” said John Ford, chief investment officer for Asia Pacific at Fidelity Worldwide Investment.

“This …is in large part responsible for the current liquidity squeeze.” Stocks fell across the board, with only 83 stocks rising, and 1,439 falling. Even Shanghai’s top blue chip exchange-traded funds, the target of purchases by a stabilization fund set up by Chinese brokerages, and state investor Central Huijin, also fell sharply. In an unusual manner, various Chinese government agencies published a series of measures throughout the trading session, including urging major shareholders and top executives of listed companies to buy their own shares, and allowing insurers to buy more blue chips. Bank of America Merrill Lynch said China’s deleveraging and margin calls could be far from over, with no bottom seen until the government becomes buyer of last resort.

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Not going to work.

• China Tries Japan’s Approach to a Stock Bubble (Pesek)

In any discussion of historical precedents for China’s ongoing battle with stock traders, Japan’s epic “price-keeping operations” deserve pride of place. In the early 1990s, stock traders started getting spooked by bad debts from Japan’s 1980s bubble years. In response, Tokyo marshalled one of history’s biggest government-buying sprees to hold the Nikkei stock market above 17,000. Untold billions of yen from national pension funds and postal savings accounts were channeled through the Ministry of Finance into shares, and authorities also clamped down on short selling. China, confronted today with plunging shares on the Beijing and Shanghai stock markets, has now organized an intervention that makes Tokyo’s look downright lame.

And that strategy will almost certainly come back to haunt Xi Jinping’s Communist Party, just as it did the Liberal Democratic Party of Japan’s then-Prime Minister Kiichi Miyazawa. So many of the forces behind Japan’s last several lost decades of economic stagnation and deflation can be traced back to the moment Miyazawa’s government decided to treat only the symptoms of the country’s economic frailty, rather than its underlying causes. More than a decade would pass before the LDP admitted Japan’s economy was suffering from the many bad loans the government had encouraged and the bailouts of zombie companies it had organized.

But in many ways, Tokyo never stopped confining its reform efforts to the symptoms of the country’s malaise. The country’s 15 prime ministers over the past two decades have avoided addressing the country’s excess of regulation, rigid labor laws and high trade tariffs. And for all his talk of sweeping change, current Prime Minister Shinzo Abe has been no different. His revival plans, like those of his predecessors, center on boosting asset prices. Abe’s nudging of the $1.1 trillion Government Pension Investment Fund to buy domestic stocks is a reprisal of the price-keeping operations of years past. And the yen’s 34% plunge since late 2012, encouraged by Abe’s government, has pumped up corporate profits and, in turn, the Nikkei stock exchange.

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“In May 1998 Mr Hague used a speech to warn that some countries in the Euro would find themselves ‘trapped in a burning building with no exits’.”

• Greece Debacle Is Only A ‘Minor Rehearsal’ For Coming Crash: Hague (DM)

Former foreign secretary William Hague has broken cover to urge Greece to abandon the Euro or be stuck in a ‘permanent crisis’. Mr Hague, who stood down from politics at the election, said Greece had no chance of turning its economy around within the single currency unless Germany agreed to hand over big subsidies ‘forever’. But the former Tory leader went even further, warning that the ‘Greek debacle of 2015’ will not be the end of the euro crisis ‘but its real beginning’ – eventually dragging in Italy, Spain, Portugal and other southern European countries. Mr Hague’s warning comes ahead of a crisis summit of Eurozone leaders in Brussels tonight amid warnings from Germany that the single currency could ‘blow apart’ if Greece is allowed to blackmail the rest of the Eurozone.

Angela Merkel and Francois Hollande were locked in a bitter stand-off ahead of yet another bid by eurozone leaders to prevent the debt-ridden state crashing out of the single currency. Athens yesterday extended its ‘bank holiday’ until at least Thursday after the ECB deferred a decision on whether to continue propping up the country’s financial institutions. But one American hedge fund, Balyasny, yesterday warned investors that Greek banks were on the verge of running dry, leaving the country 48 hours from civil unrest. Writing in the Daily Telegraph today, Mr Hague hit out at European leaders for pushing ahead with the single currency despite warnings that it would trap some countries in permanent recession.

In May 1998 Mr Hague used a speech to warn that some countries in the Euro would find themselves ‘trapped in a burning building with no exits’. The then Tory leader predicted ‘wage cuts, tax hikes, and the creation of vicious unemployment blackspots’. Speaking today Mr Hague said: ‘I hope the Eurozone leaders meeting today will remember that those of us who criticised the euro at its creation were correct in our forecasts. ‘Otherwise they risk adding to the monumental errors of judgement, analysis and leadership made by their predecessors in 1998.’

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“China has more than 120 times the population of Greece..”

• Greece ‘A Sideshow To China Meltdown’ (HuffPo)

As the Greek debt drama plays itself out one 60-euro withdrawal at a time, some economic observers are saying the world is paying attention to the wrong crisis. That’s because in the space of three weeks, China’s Shanghai Composite stock index has lost nearly 30% of its value, wiping out some $2.3 trillion U.S. in wealth. As Bloomberg News put it, that’s a loss of $1 billion for every minute of trading. Regulators have halted trading in more than 700 listed companies, and at least two dozen IPOs have been cancelled. And some economists fear the country’s response to the downturn could be worse than the stock market crash itself.

“China could well be setting the stage for another financial time bomb to match its local government debt and real estate bubbles,” said Sherry Cooper, the former chief economist at the Bank of Montreal, in a note issued Tuesday. She described the Greek crisis as a “sideshow” to the real drama unfolding in China. “China has more than 120 times the population of Greece and is the second largest economy in the world, dominating demand for natural resources,” writes Cooper, who is now chief economist at Dominion Lending Centres. It’s that demand for natural resources that makes China very important to Canada’s economy, even if the two countries’ trade relationship isn’t that large.

By largely determining demand for natural resources, China effectively sets the prices Canada gets for its resources on global markets. And China’s crash is already having an impact on Canada, Cooper said in an email to HuffPost. “It has already led to lower commodity prices and therefore further damaged the resource sector of our stock market,” she said. “Today’s very weak trade figures reflect the slowdown in energy exports. Not good news for the Canadian economy.”

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“They just didn’t want us to sign. They had already decided to push us out..”

• Europe Is Blowing Itself Apart Over Greece, Nobody Seems Able To Stop It (AEP)

Like a tragedy from Euripides, the long struggle between Greece and Europe’s creditor powers is reaching a cataclysmic end that nobody planned, nobody seems able to escape, and that threatens to shatter the greater European order in the process. Greek premier Alexis Tsipras never expected to win Sunday’s referendum on EMU bail-out terms, let alone to preside over a blazing national revolt against foreign control. He called the snap vote with the expectation – and intention – of losing it. The plan was to put up a good fight, accept honourable defeat, and hand over the keys of the Maximos Mansion, leaving it to others to implement the June 25 “ultimatum” and suffer the opprobrium. This ultimatum came as a shock to the Greek cabinet.

They thought they were on the cusp of a deal, bad though it was. Mr Tsipras had already made the decision to acquiesce to austerity demands, recognizing that Syriza had failed to bring about a debtors’ cartel of southern EMU states and had seriously misjudged the mood across the eurozone. Instead they were confronted with a text from the creditors that upped the ante, demanding a rise in VAT on tourist hotels from 7pc (de facto) to 23pc at a single stroke. Creditors insisted on further pension cuts of 1pc of GDP by next year and a phase out of welfare assistance (EKAS) for poorer pensioners, even though pensions have already been cut by 44pc. They insisted on fiscal tightening equal to 2pc of GDP in an economy reeling from six years of depression and devastating hysteresis.

They offered no debt relief. The Europeans intervened behind the scenes to suppress a report by the IMF validating Greece’s claim that its debt is “unsustainable”. The IMF concluded that the country not only needs a 30pc haircut to restore viability, but also €52bn of fresh money to claw its way out of crisis. They rejected Greek plans to work with the OECD on market reforms, and with the International Labour Organisation on collective bargaining laws. They stuck rigidly to their script, refusing to recognise in any way that their own Dickensian prescriptions have been discredited by economists from across the world. “They just didn’t want us to sign. They had already decided to push us out,” said the now-departed finance minister Yanis Varoufakis.

So Syriza called the referendum. To their consternation, they won, igniting the great Greek revolt of 2015, the moment when the people finally issued a primal scream, daubed their war paint, and formed the hoplite phalanx. Mr Tsipras is now trapped by his success. “The referendum has its own dynamic. People will revolt if he comes back from Brussels with a shoddy compromise,” said Costas Lapavitsas, a Syriza MP. “Tsipras doesn’t want to take the path of Grexit, but I think he realizes that this is now what lies straight ahead of him,” he said.

Read more …

Whatever.

• ECB Adds ‘Moral Hazard’ To Emergency Liquidity Assistance Rules (BBG)

The European Central Bank warned that “moral hazard” could be a reason to object to the emergency liquidity assistance it allows lenders to access, just a day after it tightened conditions on the aid for Greece. The Eurosystem’s functioning could be disrupted by “provision of ELA at overly generous conditions, which, in turn, could increase the risk of moral hazard on the side of financial institutions or responsible authorities,” the ECB said in a document published on its website Tuesday. “The objective of ELA is to support solvent credit institutions facing temporary liquidity problems. It is not a monetary-policy instrument.”

The document on the ECB’s financial-risk management clarifies the conditions surrounding emergency bank aid at a time when policy makers are restricting the provision of such funding to Greek banks. The reference to moral hazard indicates that officials are worried that bending the liquidity rules for Greece, as the country heads for a possible default, may lead future recipients to act less responsibly. On Monday, the ECB increased the discounts on collateral for lenders receiving ELA from the Bank of Greece. That makes it more difficult for banks to access the funds that have kept them alive as deposit withdrawals accelerated amid uncertainty over the country’s place in the euro. While the risk of ELA is nominally borne by the national central bank that provides it, the Frankfurt-based ECB has broad discretion over the terms. The new document didn’t specify what would quantify “overly generous” provision.

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More left wing.

• New Greek Finance Minister Is A Change Of Style, Not Substance (Reuters)

Euclid Tsakalotos, the mild-tempered professor who was appointed as Greece’s new finance minister on Monday, is a clear change in style from his combative predecessor Yanis Varoufakis.The 55-year-old Tsakalotos studied at prestigious private London school St Paul’s and at Oxford University, speaks Greek with a British accent and rarely appears in public, let alone wearing the torso-hugging T-shirts Varoufakis favors.But if European officials expect Athens’ new finance chief, who has already been a key negotiator in drawn-out meetings between the Greek government and creditors, to take a softer approach in the substance of new talks, they can think again.

As the brainchild of Syriza’s economic thinking, Tsakalotos is likely to redouble efforts to put one of the most contentious issues in the five months of financial aid negotiations between Greece and its creditors — debt relief — back on the table. In a news conference after being sworn in, Tsakalotos said he was anxious about the task before him. “I cannot hide from you that I am quite nervous. I am not taking on this job at the easiest point in Greek history,” he said. But the minister, who sat beside his predecessor, said he was keen to restart talks with European partners, in order to act on a decision taken by Greeks in a Sunday referendum to reject previous terms offered by creditors in exchange for aid.

“We want to continue discussions, to take this mandate given to us by the Greek people [to strive] for something better…for all these people who have been suffering so much.” Tsakalotos, who co-authored a book with Greek central bank governor Yannis Stournaras, has been dubbed in leftist jargon a “Revolutionary Europeanist” — an economist who supports European Union integration, but not its capitalist principles. Like Varoufakis, Tsakalotos has often decried Europe for big democratic deficiencies and argued that ill-guided fiscal austerity imposed by the core of the euro zone has unnecessarily impoverished Greece and other countries on the periphery.

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Not going to listen.

• Prominent Economists Urge Merkel To Change Course On Greek Crisis (Reuters)

Prominent economists called on German Chancellor Angela Merkel to change her policy course and stop “force-feeding” the Greek people “never-ending austerity” in an open letter published in leading European newspapers on Tuesday. “The medicine prescribed by the German finance ministry and Brussels has bled the patient, not cured the disease,” the economists wrote in an open letter to Merkel published on the website of Germany’s Tagesspiegel. “Right now, the Greek government is being asked to put a gun to its head and pull the trigger,” they said in the letter, which will also appear in France’s Le Monde and in English in The Guardian and The Nation.

“Sadly, the bullet will not only kill off Greece’s future in Europe. The collateral damage will kill the eurozone as a beacon of hope, democracy and prosperity, and could lead to far-reaching economic consequences across the world.” At an emergency eurozone summit on Tuesday, Greek Prime Minister Alexis Tsipras launched a desperate bid to win fresh aid from skeptical creditors. But Merkel, under domestic pressure to take a hard line on Greece, has made it clear that it is up to Tsipras to put forward credible proposals before negotiations with Athens can reopen.

The open letter, which was signed by Thomas Piketty of the Paris School of Economics and Jeffrey D. Sachs from Columbia University among others, urged Merkel to make concessions towards Greece. “To Chancellor Merkel our message is clear: we urge you to take this vital action of leadership for Greece and Germany, and also for the world.” “History will remember you for your actions this week. We expect and count on you to provide the bold and generous steps towards Greece that will serve Europe for generations to come.”

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Morally.

• The Troika Is Politically Bankrupt (Monbiot)

Greece may be financially bankrupt, but the troika is politically bankrupt. Those who persecute this nation wield illegitimate, undemocratic powers, powers of the kind now afflicting us all. Consider the International Monetary Fund. The distribution of power here was perfectly stitched up: IMF decisions require an 85% majority, and the US holds 17% of the votes. The IMF is controlled by the rich, and governs the poor on their behalf. It’s now doing to Greece what it has done to one poor nation after another, from Argentina to Zambia. Its structural adjustment programmes have forced scores of elected governments to dismantle public spending, destroying health, education and all the means by which the wretched of the earth might improve their lives.

The same programme is imposed regardless of circumstance: every country the IMF colonises must place the control of inflation ahead of other economic objectives; immediately remove barriers to trade and the flow of capital; liberalise its banking system; reduce government spending on everything bar debt repayments; and privatise assets that can be sold to foreign investors. Using the threat of its self-fulfilling prophecy (it warns the financial markets that countries that don’t submit to its demands are doomed), it has forced governments to abandon progressive policies. Almost single-handedly, it engineered the 1997 Asian financial crisis: by forcing governments to remove capital controls, it opened currencies to attack by financial speculators. Only countries such as Malaysia and China, which refused to cave in, escaped.

Consider the ECB. Like most other central banks, it enjoys “political independence”. This does not mean that it is free from politics, only that it is free from democracy. It is ruled instead by the financial sector, whose interests it is constitutionally obliged to champion through its inflation target of around 2%. Ever mindful of where power lies, it has exceeded this mandate, inflicting deflation and epic unemployment on poorer members of the eurozone. The Maastricht treaty, establishing the European Union and the euro, was built on a lethal delusion: a belief that the ECB could provide the only common economic governance that monetary union required. It arose from an extreme version of market fundamentalism: if inflation were kept low, its authors imagined, the magic of the markets would resolve all other social and economic problems, making politics redundant. Those sober, suited, serious people, who now pronounce themselves the only adults in the room, turn out to be demented utopian fantasists, votaries of a fanatical economic cult.

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“..the troika has been “mak[ing] an example of Greece” for at least five years.”

• NY Times Urges the Troika to “Make an Example of Greece” (Bill Black)

It is often the moral and economic blindness of New York Times articles about the EU crisis that is most striking. The newest entry in this field is entitled “Now Europe Must Decide Whether to Make an Example of Greece.” That is a chilling phrase most associated in our popular culture with a Consigliere and his Don deciding whether to order a mob “hit.” It is, therefore, fitting (albeit over the top) as a criticism of the troika’s economic, political, and propaganda war against the Greek people. Except that the article is actually another salvo in that war. Let’s start with the obvious – except to the NYT. “Europe” isn’t “decid[ing]” anything. The troika is making the decisions.

More precisely, it is the CEOs of the elite German corporations and banks that direct the troika’s policies that are making the decisions. The troika simply implements those decisions. The troika consists of the ECB, the IMF, and the European Commission. None of these three entities represents “Europe.” None of them will hold a democratic referendum of the peoples of “Europe” to determine policies. Indeed, they are apoplectic that the Greek government dared to ask the people of Greece through a democratic process whether to give in to the troika’s latest efforts to extort the Greek government to inflict ever more destructive and economically illiterate malpractice on the Greek people.

Second, the troika has been “mak[ing] an example of Greece” for at least five years. It extorted Greece to inflict the economic malpractice of austerity in response to a Great Recession. The result was just what economists warned – Greece was forced, gratuitously, into worse-than-Great Depression levels of unemployment that persist today seven years after Lehman’s collapse. In this process, the troika blocked a prior referendum proposed by Greece’s Socialist Prime Minister George Papandreou in late 2011 and forced him to resign for daring to propose democratic decision-making. Read the Guardian’s risible account of the 2010 coup that the troika engineered in Greece for an unintended insight as to how the UK’s “New Labour” Party has become an anti-labor party of austerity and “aspirational” hostility to efforts to contain the City of London’s criminal culture.

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“Nominal growth of around 2% annually would be enough to stabilise Greek sovereign debt as a share of GDP.”

• Austerity Is Not The Solution To The Greek Crisis (Callam Pickering)

Due to earlier debt restructuring, official statistics in Greece vastly overstate its effective debt burden. As a result, Greece’s debt repayments should be manageable provided the European Union and the IMF can devise a reform package that enables the Greece economy to grow at a modest pace. Unfortunately, in the current political environment – which continues to favour harsh austerity over economic growth – it appears as though Greece will need to default or leave the euro before its economy can return to any sense of normality. Government debt in Greece officially sits at around 180% of nominal GDP. Due to earlier debt restructuring, however, effective government debt is functionally much lower.

This has occurred via two distinct channels: the decision by private creditors to accept significant haircuts on existing debt during 2012 and the significant rise in the average maturity of Greek government debt. Average maturity on existing sovereign debt is now around 16 years, double that of Germany and Italy. Further restructuring, assuming that there isn’t a Greek exit, could see the average maturity increase to between 20 and 25 years. As a result, the interest burden on existing government debt in Greece has fallen to 4% of nominal GDP (down from over 7% in 2011), which is considerably lower than the interest burden in both Italy and Portugal. Interest payments in Greece are just 2.2% of outstanding sovereign debt.

By comparison, interest payments in Spain and Italy are estimated at 3.4% and 3.6% of government debt, respectively. The ratio for Greece has declined by two-thirds since 2011. The key difference between Greece and these other countries is that Greece remains firmly in a state of economic depression. Harsh austerity measures have undermined its productive capacity, killed off its banking sector and made it almost impossible for the region to recover in any meaningful sense. The solution to Greece’s problems almost certainly requires a combination of further debt restructuring, growth enhancing reforms, and fiscal or monetary stimulus. Austerity isn’t the answer and will achieve little more than prolonging Greece’s financial and economic crisis.

Nominal growth of around 2% annually would be enough to stabilise Greek sovereign debt as a share of GDP. Growth beyond that would see their debt burden gradually decline towards more normal levels. Unfortunately, the ECB and the troika continue to assume that Greek government debt really does sit at 180% of nominal GDP. They continue to assume that the interest burden of Greece exceeds that of other member countries. In doing so they have done irreparable damage to the Greek economy. In blindly pursuing the interests of private and sovereign creditors, they have all but ensured that Greece will eventually default on their debt and leave the euro.

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Yeah, why not another ultimatum?!

• Lenders Give Greece Until Sunday To Avoid Grexit (AFP)

European leaders gave debt-stricken Greece a final deadline of Sunday to reach a new bailout deal and avoid crashing out of the euro, after Greek voters rejected international creditors’ plans in a weekend referendum. In the first step of its renewed bid for funding, Greece’s leftist government must submit detailed reform plans by Thursday, EU President Donald Tusk said after eurozone leaders held an emergency summit with Greek Prime Minister Alexis Tsipras. All 28 European Union leaders will then examine the plans on Sunday in a make-or-break summit that will either save Greece’s moribund economy or leave it to its fate. “Tonight I have to say loud and clear – the final deadline ends this week,” Tusk told a news conference.

“Inability to find an agreement may lead to bankruptcy of Greece and insolvency of its banking system,” he added. European Commission President Jean-Claude Juncker warned “we have a Grexit scenario prepared in detail” if Greece failed to reach a deal, although he insisted he wanted Athens to stay in the euro club. German Chancellor Angela Merkel meanwhile warned Greece would need a debt program lasting “several years” and insisted writing off any of Greece’s €320 billion debt mountain was out of the question. The deadline came after Tsipras and his new finance minister Euclid Tsakalotos came to Brussels to discuss the fall-out from the dramatic referendum. Greeks voted by 61% to reject creditor demands for more austerity in return fresh EU-IMF bailout funds.

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From his book, 2011.

• Merkel’s Buttons (Yanis Varoufakis)

Picture the scene when a sheepish finance minister enters the chancellor’s Berlin office bearing a control panel featuring one yellow and one red button, and telling her that she must choose to press one or the other. This is how he explains what each button will do:

The red button If you press it, chancellor, the euro crisis ends immediately, with a general rise in growth throughout Europe, a sudden collapse of debt for each member state to below its Maastricht limit, no pain for Greek citizens (or for the Italians, Portuguese, etc), no guarantees for the periphery’s debts (states or banks) to be provided by German and Dutch taxpayers, interest rate spreads below 3% throughout the eurozone, a diminution in the eurozone’s internal imbalances, and a wholesale rise in aggregate investment.

The yellow button If you press it, chancellor, the situation in the eurozone remains more or less as it is for a decade. The euro crisis continues to bubble along, albeit in a controlled fashion. While the probability of a break-up, which will be a calamity for Germany, remains non-trivial, the chances are that, if you push the yellow button, the eurozone will not break up (with a little help from the ECB), German interest rates will remain extremely low, the euro will be nicely depressed (‘nicely’ from the perspective of German exporters), the periphery’s spreads will be sky-high (but not explosive), Italy and Spain will enter deeper into a debt-deflationary spiral that sees to a reduction of their national income by 15% over the next three years, France shall slip steadily into quasi-insolvency, GDP per capita will rise slowly in the surplus countries and fall precipitously in the periphery.

As for the first “fallen” nations (Greece, Ireland and Portugal), they shall become little Latvias, or indeed Kosovos: devastated lands (after the loss of between 25% and 40% of national income, a massive exodus of their skilled labour) on which our people will holiday and buy cheap real estate. In aggregate, if you choose the yellow button, chancellor, eurozone unemployment will remain well above UK and US levels, investment will be anaemic, growth negative and poverty on the up and up. Which button do you think, dear reader, the chancellor would want to push?

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“Anti-establishment voters are always underrepresented in establishment polls.”

• Politics Always Trumps Economics (Ben Hunt)

There are decades where nothing happens; and there are weeks where decades happen.
– Vladimir Lenin (1870 – 1924)

In 1914, Europe had arrived at a point in which every country except Germany was afraid of the present, and Germany was afraid of the future.
– Sir Edward Grey (1862 – 1933)

Last week’s email, “1914 is the New Black”, was the most widely read Epsilon Theory note to date, and given the weekend ’s events it bears repeating, as the echoes of 1914 are growing louder and louder. We are, I think, likely embarked on the death spiral phase of a game of Chicken, just as in the summer of 1914. The stakes are, for now at least, not nearly as cataclysmic today as they were a century ago, but the social and political dynamics are eerily alike. I’m often asked how to get a better take on a historical event like the lead-up to World War I, and the answer is that there’s no substitute for immersing yourself in what people were actually saying and writing at the time the events transpired.

If you’re lucky, perhaps you’ll pick a period that also attracted the attention of a gifted historian like a Robert Caro or a David McCullough. Second best, I’ve found, is to find a gifted editor or anthologist to smooth the path a bit. One such anthologist is Peter Vansittart, who collected a wide range of original texts in his classic books, “Voices: 1870 – 1914” and “Voices from the Great War”. I’ve taken some of those texts and appended them below. They speak for themselves, I hope, to illustrate the defining characteristic of a spiraling game of Chicken – all sides begin to speak in terms of “having no choice” but to take aggressive actions to defend their own interests. Before the quotes, though, three other historical observations:

• The Austrian ultimatum to Serbia – long seen as the proximate cause of World War I – was accepted by the Serbian government almost in its entirety. Unfortunately, that “almost” part made all the difference. An important anecdote to remember the next time someone calls your attention to Tsipras’s acceptance of 90% of the Eurogroup reform ultimatum.

• Anti-establishment voters are always underrepresented in establishment polls. Noted segregationist and Alabama governor George Wallace won the 1972 Democratic Party primary in Michigan despite showing third in polls. Daniel Ortega and his Sandinista regime lost the 1990 Nicaraguan election by 10 percentage points to Violeta Chamorro despite leading by more than 10 points in every pre-election poll. The Syriza NO landslide was no surprise here, and this is an important phenomenon to keep in mind when you start to see opinion polls from Italy and France published over the next few days.

• Politics always trumps economics. My favorite 1914 quote in this regard is from Lord Cunliffe, governor of the Bank of England from 1913 – 1918, who famously declared that war was impossible because “The Germans haven’t the credits.” So what if Greek banks run out of euros? The Greek government will make their own, or maybe issue California-style IOUs and dare the Eurogroup to boot them out of the currency. If you think that an ECB squeeze can put this political genie back in the bottle, you’re making the same classic error as Walter Cunliffe did.

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Petty personal politics.

• Greece creditors Will Gain Nothing From Toppling Europe-Lover Varoufakis (AEP)

Yanis Varoufakis was sacrificed to placate the European creditor powers. Germany let it be known that there could be no possible hope of an accord on bail-out conditions as long as this wild spirit remained finance minister of Greece. In a moment of condign fury, Mr Varoufakis had accused EMU leaders of “terrorism”, responsible for deliberately precipitating the collapse of the banks in one of its own member states. (This is objectively true, of course) “I shall wear the creditors’ loathing with pride,” he signed off in his parting shot, ‘Minister no More’. It is an odd end to the ‘OXI’ landslide in the referendum, a 61pc stunner that seemed at first sight to be a vindication of Syriza’s defiant stand over the last six months.

He had looked like the hero of the hour threading through ecstatic crowds in Syntagma Square in the final rally. Fate plays its tricks. “Soon after the announcement of the referendum results, I was made aware of a certain preference by some Eurogroup participants, and assorted ‘partners,’ for my … ‘absence’ from its meetings; an idea that the prime minister judged to be potentially helpful to him in reaching an agreement. For this reason I am leaving the Ministry of Finance today.” His sacking is a paradox. He is the most passionate pro-European in the upper reaches of the Syriza movement, perhaps too much so since he thought it his mission to rescue the whole of southern Europe from ‘fiscal waterboarding’ and smash the 1930s contractionary regime of Wolfgang Schauble’s monetary union for benefit of mankind.

But then he was starting to harbour ‘dangerous’ thoughts. When I asked him before the vote whether he was prepared to contemplate seizing direct control of the Greek banking system, a restoration of sovereign monetary instruments, Grexit, and a return to the drachma — if the ECB maintains its liquidity blockade, forcing the country to its knees – he thought for a while and finally answered yes. “I am sick of these bigots,” he said. His fear was that Greece did not have the technical competence to carry out an orderly exit from EMU, and truth be told, Syriza has already raided every possible source of funds within the reach of the Greek state – bar a secret stash still at the central bank, controlled by Syriza’s political foes – and therefore has no emergency reserves to prevent the crisis spinning out of control in the first traumatic weeks.

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Great timing….

• Washington Calls For Flexibility On Greece (Leigh)

For the United States, Greece is a valued NATO ally and a land of relative stability, between the faltering Balkans, North Africa, and the Middle East. Its strategic importance throughout the Mediterranean has increased following the failure of the Arab uprisings and the falling-out of two US allies, Turkey and Israel. Greece’s cooperation is crucial in counter-terrorism and in efforts to cope with the flow of refugees from Syria and the Horn of Africa. It has become a security partner for Israel, a relationship reflected in growing links between the Greek and Jewish communities in the United States. The United States has an interest in Europe’s drive for greater energy security and diversification of supply away from Russia.

Greece aspires to an important role in Europe’s energy security through its own offshore exploration for oil and gas and potential future production and through new interconnectors to the Balkans and up into central Europe. Overall, the “Europeanization” of Greece has saved it from the tribulations of its Balkan neighbors. Much would be lost for the Greek people, the region, the EU, and the United States if Greece became a failed state in an increasingly troubled neighborhood. Russian President Vladimir Putin’s efforts to seduce wayward European states might then have greater success.

Against this background, US President Barack Obama and senior administration officials have repeatedly urged the ECB, the European Commission, and the IMF to show greater flexibility to reach an agreement with Greece. Cabinet members have made dozens of phone calls urging compromise. While the president has not publicly taken a position on the Greek referendum and its implications, he observed earlier this year that “You cannot keep on squeezing countries that are in the midst of depression.” A senior White House official has called for a socially just solution. Clearly the administration would prefer less draconian demands by the creditors but is sensitive to possible accusations of interference.

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Always a good idea.

• Want To Help Greece? Go There On Holiday (Alex Andreou)

Covering the Greek crisis for the past few months, the question I am asked most commonly is: “Why won’t Greece just stop whining and pay its debts?” It is quite depressing to realise there are so many people out there who think there is a mattress somewhere in Greece stuffed with a trillion euros, which we are refusing to hand over simply out of radical leftism. The second most commonly asked question, however, cheers me up significantly: “Is there any way we can help?” There is: visit Greece. The weather is just as stunning as it ever was this time of year; the archaeological sites just as interesting; the beaches just as magical; the food just as heart-healthy. The prices are significantly cheaper than usual. It is one of those rare everybody-wins situations.

The people are even more welcoming, more hospitable and more grateful than ever. The reaction to difficulty has been a broader smile, a wider embrace. We understand that you have a choice and we understand why you have chosen Greece right now. Tourism is liquidity. Tourism is solidarity. If you are thinking of helping my country in this way, there are ways to do so perfectly safely and to maximise the benefit. It is important to say that there has been no violence, at all, anywhere. And whenever there has been any trouble in the past, it has always confined itself in a very small and easily avoidable area, in the very centre of Athens. If you are feeling even a little nervous about it, plenty of airlines fly directly to dozens of resorts and stunning, out-of-the-way destinations.

A British friend, Kris, who just came back from Athens, says: “It would be very easy not to know that anything was even going on … There were some queues at ATMs, but no more than in the centre of London during a busy weekend. There is no rationing or shortages. The only exception was the night of the rival rallies, for Yes and Oxi; I was absolutely amazed that they were held less than half a mile apart and there was no trouble whatsoever. From our hotel terrace, it was like listening to democracy in stereo … I would go back in a heartbeat.”

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Great Steve.

• Steve Keen and Max Keiser (RT)

In this episode of the Keiser Report, Max Keiser and Stacy Herbert discuss the Greek referendum results, financial terrorism and bail-in fears induced velocity of money. In the second half, Max interviews Professor Steve Keen about the Greek ‘OXI’ (No) vote and the dictatorship of the ECB.

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Debt Rattle July 6 2015

Jul 062015
 
 July 6, 2015  Posted by at 12:23 pm Finance Tagged with: , , , , , , ,  9 Responses »


DPC ‘On the beach, Palm Beach’ 1905

• Minister No More! (Yanis Varoufakis)
• Our NO Is A Majestic, Big YES To A Democratic, Rational Europe! (Varoufakis)
• Yanis Varoufakis: Why Bold, Brash Greek Finance Minister Had To Go (Guardian)
• Discussing Syriza’s Stunning Victory On The BBC (Steve Keen)
• Defiant Greeks Reject EU Demands As Syriza Readies IOU Currency (AEP)
• Yanis Varoufakis: Greece’s ‘Erratic Marxist’ (AFP)
• What Are the Geostrategic Implications of a Grexit? (Foreign Policy)
• Greece Votes No — Now What? (Peter Spiegel)
• Why The Yes Campaign Failed In Greece (Wolfgang Münchau)
• UN Debt Expert Says Greece Can’t Take More Austerity (Reuters)
• Europe Wins (Paul Krugman)
• Ending Greece’s Bleeding (Paul Krugman)
• Thomas Piketty: “Germany Has Never Repaid.” (Medium)
• We May Soon Be Able To See Polar Bears Only In Picture Books (MD)

Sorry to see him go, but he may be better able to lead things from the background.

• Minister No More! (Yanis Varoufakis)

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

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

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

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There is no democratic rational Europe.

• Our NO Is A Majestic, Big YES To A Democratic, Rational Europe! (Varoufakis)

On the 25th of January, dignity was restored to the people of Greece. In the five months that intervened since then, we became the first government that dared raise its voice, speaking on behalf of the people, saying NO to the damaging irrationality of our extend-and-pretend ‘Bailout Program’.

We
• spread the word that the Greek ‘bailouts’ were exercises whose purpose was intentionally to transfer private losses onto the shoulders of the weakest Greeks, before being transferred to other European taxpayers
• articulated, for the first time in the Eurogroup, an economic argument to which there was no credible response
• put forward moderate, technically feasible proposals that would remove the need for further ‘bailouts’
• confined the troika to its Brussels’ lair
• internationalised Greece’s humanitarian crisis and its roots in intentionally recessionary policies
• spread hope beyond Greece’s borders that democracy can breathe within a monetary union hitherto dominated by fear.

Ending interminable, self-defeating, austerity and restructuring Greece’s public debt were our two targets. But these two were also our creditors’ targets. From the moment our election seemed likely, last December, the powers-that-be started a bank run and planned, eventually, to shut Greece’s banks down. Their purpose?
• To humiliate our government by forcing us to succumb to stringent austerity, and
• To drag us into an agreement that offers no firm commitment to a sensible, well-defined debt restructure.

The ultimatum of 25th June was the means by which these aims would be achieved. The people of Greece today returned this ultimatum to its senders; despite the fear mongering that the domestic oligarchic media transmitted night and day into their homes. Today’s referendum delivered a resounding call for a mutually beneficial agreement between Greece and our European partners. We shall respond to the Greek voters’ call with a positive approach to:
• The IMF, which only recently released a helpful report confirming that Greek public debt was unsustainable
• The ECB, the Governing Council of which, over the past week, refused to countenance some of the more aggressive voices within
• The European Commission, whose leadership kept throwing bridges over the chasm separating Greece from some of our partners.

Our NO is a majestic, big YES to a democratic Europe. It is a NO to the dystopic vision of a Eurozone that functions like an iron cage for its peoples. It is a loud YES to the vision of a Eurozone offering the prospect of social justice with shared prosperity for all Europeans.

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Curious piece by Helena Smith

• Yanis Varoufakis: Why Bold, Brash Greek Finance Minister Had To Go (Guardian)

When historians look back at the great Greek debt crisis, the figure of Yanis Varoufakis will feature large. Bold and brash, he did more to internationalise the folly of austerity politics than any other member of the radical left government of Athens. Alexis Tsipras, the young prime minister, was much indebted to him, and Varoufakis’s resignation was quickly followed by effusive praise. “The prime minister feels the need to thank him for his ceaseless effort to promote the positions of the government and the interests of the Greek people under very difficult circumstances,” government spokesman Gavriel Sakellaridis announced.

Varoufakis may have been forced to leave front-line politics, but he does so hugely vindicated by the historic no vote delivered by Greeks on Sunday. There are not a few in Athens today who believe he is also a victim of his own success. The resounding rejection of further belt-tightening in a referendum that pitted Greece against all its eurozone partners was a high-stakes gamble associated squarely with the 54-year-old’s penchant for game theory and buccaneering style. The morning after, he had to go. In announcing his resignation, the controversial finance minister recognised that of all the impediments to a prospective deal (and there are still many) he would be the biggest.

Even by the standards of a crisis that long ago dispensed with diplomatic niceties, the combative politician had pushed the boundaries of acceptable fighting talk too far. On the eve of the vote, he accused Europe of indulging in terrorism, saying it was instilling fear in people in its bid to get Greece to acquiesce to “neoliberal dogmas.” In April, when eurozone counterparts expressed exasperation at his hectoring and lecturing style after an especially explosive Eurogroup, Varoufakis had felt fit to announce: “They are unanimous in their hate for me – and I welcome their hatred.”

By June, when it became apparent that Varoufakis would take things to the brink, senior Greek government officials in Athens were also finding it hard to contain their consternation. Many were enraged by tactics they saw as deliberately confrontational and a danger to the country’s relationship with Europe. Varoufakis’s showy lifestyle and shameless narcissism also jarred. But his apparent endorsement of a parallel currency and IOUs appears to have been the straw that broke the camel’s back. His ability to represent Greece abroad was over. Ever the maverick, Varoufakis is unlikely to vanish overnight. Although never a member of the ruling Syriza party, he remains an MP and, very possibly, will continue to influence Tsipras behind the scenes. There are few who doubt he will also be working on an unexpurgated version of the euro crisis, Varoufakis style.

He has already said he is looking forward to life on the backbenches. But will his sacrifice be enough to placate creditors? Varoufakis leaves an economy in meltdown, banks closed, capital controls imposed and shortages growing by the hour. If his removal is not enough, the mess that has also been the price of his brinkmanship may well end up being his lasting legacy – a legacy that historians will not forget.

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On the nose.

• Discussing Syriza’s Stunning Victory On The BBC (Steve Keen)

After yesterday’s remarkable victory in the Referendum, I was interviewed on the BBC News Channel. Someone has posted a recording from the BBC News Channel stream on YouTube.

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The parallel currency issue is a big one.

• Defiant Greeks Reject EU Demands As Syriza Readies IOU Currency (AEP)

Greek voters have rejected the austerity demands of Europe’s creditor powers by a stunning margin, sweeping aside warnings that this could lead to the collapse of the banking system and a return to the drachma. Early returns in the historic referendum showed the No side -Oxi in Greek =- running at 61pc versus 39pc for the Yes side as the Greek people turned out en masse to vent their anger over six years of economic depression and national humiliation. A volcanic revolt appeared to have swept through Greek islands. The shock result effectively calls the bluff of eurozone leaders and the heads of the European Commission and Parliament, forcing them either to back down or carry out drastic threats to eject Greece from monetary union.

The European Central Bank faces an immediate decision over whether to continue freezing emergency liquidity assistance (ELA) for Greek banks at €89bn, a stance that would amount to liquidity suffocation. “If they do that, the situation would be very serious. That would be pretty close to trying to bring down the government,” said Euclid Tsakalotos, the country’s chief debt negotiator. The Bank of Greece (BoG) said on Sunday evening that it will make a formal request to the ECB for fresh support. The EU’s leadership was in utter confusion as it became clear during the day that support was swinging back to the “No” camp, despite blanket coverage from the private TV stations warning that a “No” meant Armageddon. “The Greek people have proven that they cannot be blackmailed, terrorized, and threatened,” said Panos Kammenos, the defence minister and head of the coalition’s ANEL party.

French president Francois Hollande said he would bend over backwards to keep Greece in the euro despite voting no. He is to meet German Chancellor Angela Merkel in Paris on Monday to draw up a joint response to what has turned into the biggest EU fiasco since the rejection of the European constitution by France and Holland in 2005. Martin Schulz, head of the European Parliament, was still insisting on Sunday that a “No” vote must mean expulsion from the euro, but his view is becoming untenable. Jean-Claude Juncker, the Commission’s chief, is equally trapped by his own rhetoric after warning last week that a No vote would be a rejection of Europe itself, leading to calamitous consequences. Top Syriza officials say they are considering drastic steps to boost liquidity and shore up the banking system, should the ECB refuse to give the country enough breathing room for a fresh talks.

“If necessary, we will issue parallel liquidity and California-style IOU’s, in an electronic form. We should have done it a week ago,” said Yanis Varoufakis, the finance minister. California issued temporary coupons to pay bills to contractors when liquidity seized up after the Lehman crisis in 2008. Mr Varoufakis insists that this is not be a prelude to Grexit but a legal action within the inviolable sanctity of monetary union. Mr Varoufakis and ministers will hold an emergency meeting tonight with the private banks and the governor of the Greek central bank, Yannis Stournaras, to decide what to do before the cash reserves of the four big lenders dry up tomorrow. Louka Katseli, head of the Hellenic bank Association, said ATM machines will run out of money within hours of the vote. One official say that Eurobank was “flat out of money” late on Sunday, even though Greek depositors have been limited to €60 a day since capital controls were imposed a week ago.

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“Varoufakis’s father Giorgos told the Greek daily Ethnos that his son’s critics “want to run him down because he is competent.”

• Yanis Varoufakis: Greece’s ‘Erratic Marxist’ (AFP)

Yanis Varoufakis, Greece’s finance minister who resigned on Monday despite the government having secured a resounding victory in a weekend referendum, rose to fame and infamy this year for his urban-cool look, his abrasive style, and acerbic attacks on austerity. In a shock announcement just hours after Sunday’s referendum results on bailout terms were announced, Varoufakis said he was quitting to help Prime Minister Alexis Tsipras in ensuing negotiations with creditors. “Soon after the announcement of the referendum results, I was made aware of a certain preference by some Eurogroup participants, and assorted ‘partners’, for my… ‘absence from its meetings; an idea that the Prime Minister judged to be potentially helpful to him in reaching an agreement. For this reason I am leaving the Ministry of Finance today,” Varoufakis said on his blog.

During the past five months of negotiations between Athens and its international creditors, the self-described “erratic Marxist” seemed more at ease chatting with unemployed anarchists than with fellow European finance ministers, who often groaned about his blunt negotiating tactics. European Economic Affairs chief Pierre Moscovici commented that Varoufakis “is a smart person, not always easy, but smart.” His straight-talking style produced notable moments including his characterisation of the austerity imposed on Greece as “fiscal waterboarding”. After negotiations broke down between Greece and its creditors, Varoufakis slammed Europese governance. “This is not the way to run a monetary union. This is a travesty. It’s a comedy of errors for five years now, Europe has been extending and pretending,” Varoufakis said in a BBC interview.

After becoming finance minister in January, there were some growing pains as he adapted to the burning glare of the global media spotlight. He allowed himself to be pictured in Paris Match magazine at a piano and dining in style with his wife on the roof terrace of his “love nest at the foot of the Acropolis”, while telling the magazine how he abhorred the “star system”. Though the maverick minister has always taken a stance protecting ordinary Greeks, his background was anything but common. He is the son of Giorgos Varoufakis, who at 90 still heads one of Greeces leading steel producers, Halyvourgiki. He also attended the Moraitis School, which has alumni including prominent Greek leaders and artists.

His early career was spent at the English universities of Essex, East Anglia and at Cambridge, and he has often been linked with research into game theory. In 1998 Varoufakis moved to Australia, and he is now a dual Greek and Australian citizen. He moved back to Greece in 2000 to teach at the University of Athens, and in January 2013 accepted a post at the University of Texas in Austin. Varoufakis has had a rebellious streak since a young age. He told the BBC he has deliberately misspelled his name Yanis, writing it with one “n”, since a confrontation with a teacher in elementary school. “I had an aesthetic problem with the double ‘n’, he said. “So I decided to write my name with one. My teacher gave me a bad grade, which made me very angry and I’ve kept writing my name with one ‘n’ ever since.”

As finance minister Varoufakis, his head shaved clean, shook up the staid world of EU summits by arriving to meetings in rock-star-style leather jackets and untucked shirts. He was quickly dubbed “Greece’s Bruce Willis”. His swagger and penchant for lecturing annoyed some EU counterparts at meetings on Greece’s debt and he was eventually pulled from frontline negotiations. Varoufakis’s father Giorgos told the Greek daily Ethnos that his son’s critics “want to run him down because he is competent.” “Yanis is a very good boy, and is always telling the prime minister what to do, which is why he adores him,” he said. A prolific blogger, Yanis Varoufakis has written several books, including “The Global Minotaur: America, Europe and the Future of the Global Economy”.

Varoufakis has said he believes his shattered country can only recover once it has rejigged the terms of an international bailout, and said early on that Greece’s massive debt could not be paid back in full. The minister said he would step down if disavowed by Greek voters who vote Sunday on whether they accept or reject bailout conditions that are no longer on the table. In his latest blog, Varoufakis gave reasons why Greeks should vote ‘no’ in the referendum, one being that the country “will” stay in the euro regardless of the outcome. He told Bloomberg TV that he would rather “cut my arm off” than stay on as minister in the case of a ‘yes’ vote.

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NATO worries.

• What Are the Geostrategic Implications of a Grexit? (Foreign Policy)

At the moment, it is unclear how Greece will ultimately fare in the current duel of wills with the Troika over its technical default, the upcoming referendum, and the possibility of a continuation of the long-running bailout drama. The two sides are locked in acrimonious finger-pointing, Greek banks are shuttered for the week, and the logical but ever elusive diplomatic and economic solution — a reasonable negotiation between the parties — seems further away than ever. As a proud Greek-American, I am saddened by the situation. Meanwhile, the July 5 referendum is judged too close to call at the moment, and most Greeks will likely be confused about the implications and uncertain how to vote.

Macroeconomic theory appears to have been the first casualty of the process, and the doomsday economic scenarios — a crashed Greek economy, a battered if not broken euro, and a deeply shaken European project — are looming large on the horizon. But in the midst of all of the appropriate Sturm und Drang of the Greek financial and economic crisis, it is worth considering the geostrategic implications of the “Grexit” — which have been largely ignored. Let’s face it: A Greece that goes crashing out of the eurozone will be an angry, disaffected, and battered nation — but one that will continue to hold membership in the European Union and NATO, both consensus-driven organizations. (“Consensus-driven” means that without unanimous consent among all members, the organization cannot take decisions or execute effective operational actions.)

Many times in NATO councils as the supreme allied commander I watched the agonizing process of building consensus, one compromise at a time. In both the EU and NATO, an uncooperative Greece in the future could time and time again put the organizations “in irons,” which is to say becalmed and not moving effectively forward. This could manifest itself very quickly in, for example, decisions about sanctions against Russia (from which Greece is avidly courting support and funding, logically enough). It could easily affect day-to-day governance in the European Union over issues from negotiating the Transatlantic Trade and Investment Partnership to agricultural subsidies to what should be done about refugee flows across the Mediterranean. Greece could become a troublesome and obstructionist actor in complex negotiations involving the EU, such as the Iranian nuclear treaty efforts.

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More Troika hubris.

• Greece Votes No — Now What? (Peter Spiegel)

Even before the polls closed in Greece, Emmanuel Macron, the French economic minister, insisted that even with a No vote in Sunday night’s referendum, talks must resume between the leftwing government in Athens and its eurozone creditors. But despite predictions by Greek ministers that a new bailout deal could be just days away, other than Mr Macron and his French colleagues, there are few elsewhere in the eurozone who predicted a resounding No would lead to much more than continued stalemate. If that is the result of overwhelming rejection of creditors’ terms, it would mean a slow march to Greece exiting the eurozone. “Greece has just signed its own suicide note,” predicted Mujtaba Rahman, head of European analysis at the Eurasia Group risk consultancy.

“Only the French will want to salvage something from this vote, but they’re unlikely to win the debate in the eurogroup.” Angela Merkel, the German chancellor, is due to fly to Paris on Monday for consultations with President François Hollande on what steps to take next. The most critical immediate response to the vote is likely to be in Frankfurt, where the European Central Bank’s policy making governing council is due to meet on Monday afternoon. With Greek voters unequivocally rejecting the bailout proposal, ECB policy makers may find it difficult to resist the argument made by council hardliners, particularly Jens Weidmann, the Bundesbank president, that the Greek government-backed securities the country’s banks use as collateral for emergency loans are heading to default.

The key date in the crisis is now July 20, when Greece owes €3.5bn on a bond held by the ECB. If Athens defaults on that bond, it would be almost impossible for the ECB to continue accepting collateral from Greek banks, and the €89bn in emergency liquidity assistance (ELA) would be withdrawn, devastating Greece’s banking sector. Without central bankers providing euros, Athens would be forced to print its own currency to reopen banks, and the dice would be cast on the path to “Grexit” from the eurozone.

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“Contempt for democracy and economic illiteracy are not merely tactical errors.”

• Why The Yes Campaign Failed In Greece (Wolfgang Münchau)

It is not that hard to explain why Alexis Tsipras won the referendum by a landslide. It is a lot harder to see what’s going to happen now. His opponents, both inside Greece and in the European Union went wrong because of serial misjudgments, ranging from the petty to the monumental. For me, three stand out. The biggest was the clearly concerted intervention by several senior EU politicians, who said that a No vote would lead to Grexit, a Greek exit from the eurozone. One of them was Sigmar Gabriel, the German economics minister and SPD chief. He even doubled up on this threat right after the results came out. The Greeks correctly interpreted these threats as an attempt to interfere in the democratic process of their country.

The news last week that eurozone officials tried to suppress the latest debt sustainability analysis of the International Monetary Fund did not help either. The IMF report essentially revealed that the Greek government had been right after all to demand debt relief. The rest of the EU gave the impression that it wanted to rig the referendum, and it did not even bother to conceal this. If you have been unemployed for five years, with no prospect of a job, it makes no difference whether the money you do not get is denominated in euros, or in drachma.

The second error of the Yes campaign was a failure to explain how the bailout programme could work economically. This is not a debate between Keynesian and neoclassical economics, the kind that keeps us endlessly busy on these pages. The Greek referendum united economists with very diverse views of how the world works, including Paul Krugman, Jeffrey Sachs and Hans-Werner Sinn. There is no reputable economic theory according to which an economy that has experienced an eight-year-long depression requires a new round of austerity to bring about economic adjustment.

The third monumental error was arrogance. The Yes supporters thought they had it nailed. Like the British Labour party before the last general election, they had been relying on polls, which turned out to be wildly inaccurate. What I found most galling was the argument that Grexit would bring about an economic catastrophe, as though the catastrophe had not already happened. If you have been unemployed for five years, with no prospect of a job, it makes no difference whether the money you do not get is denominated in euros, or in drachma. Contempt for democracy and economic illiteracy are not merely tactical errors. Those two “qualities” are now the remaining ideological planks of what is left of the European project. Greece is a reminder that the European monetary union, as it is constructed, is fundamentally unsustainable. This means it will need to be fixed, or it will end at some point.

Read more …

“..if the parties involved in the Greek tragedy paid more serious attention to what human rights law has to say, everything would be easier..“

• UN Debt Expert Says Greece Can’t Take More Austerity (Reuters)

Greece cannot take any more austerity as it will cause more social unrest and lessen the chance of an economic recovery, a United Nations debt expert said on Monday. Greeks overwhelmingly rejected conditions of a rescue package from creditors on Sunday, throwing the future of the country’s euro zone membership into further doubt and deepening a standoff with lenders. Juan Pablo Bohoslavsky, the U.N. Independent Expert on Foreign Debt, told reporters in Beijing that Greece’s creditors in the European Union should have paid more attention to what international law says on the matter of debt. “I have the impression that the EU had forgotten that international human rights law plays and should play a key role in finance. The international community attaches great importance to the interlinks between human rights and finance,” said Bohoslavsky, who operates under the auspices of the U.N.’s High Commissioner for Human Rights.

“The message here is that if the parties involved in the Greek tragedy paid more serious attention to what human rights law has to say, everything would be easier, for the Greek population particularly,” he added. Bohoslavsky said the austerity demanded of Greece had not worked, adding he will visit Greece later in the year. “It’s very clear the message from the Greek population – no more austerity measures. Actually if you look at the figures, austerity measures didn’t really help the country to recover.” In a separate statement, Bohoslavsky said he was concerned at reports of food and medicine shortages, and that he was asking to meet EU officials to remind them of their human rights obligations to Greece.

Bohoslavsky, visiting at the invitation of China’s government, said he carried a message of the need for human rights to be considered in global lending, something important for China which is setting up two new multilateral lenders – the Asian Infrastructure Investment Bank and the New Development Bank. “A narrow idea of efficiency in which human rights plays a limited role should not find its way into these two banks,” he said. China has promised that the infrastructure bank will follow global best practices in transparency and governance. Rights groups often criticize China for its “no-strings” loans to countries, especially in Africa, for encouraging corruption and abuses with a lack of oversight.

Read more …

“.. European institutions have just been saved from their own worst instincts..”

• Europe Wins (Paul Krugman)

Tsipras and Syriza have won big in the referendum, strengthening their hand for whatever comes next. But they’re not the only winners: I would argue that Europe, and the European idea, just won big — at least in the sense of dodging a bullet. I know that’s not how most people see it. But think of it this way: we have just witnessed Greece stand up to a truly vile campaign of bullying and intimidation, an attempt to scare the Greek public, not just into accepting creditor demands, but into getting rid of their government. It was a shameful moment in modern European history, and would have set a truly ugly precedent if it had succeeded.

But it didn’t. You don’t have to love Syriza, or believe that they know what they’re doing — it’s not clear that they do, although the troika has been even worse — to believe that European institutions have just been saved from their own worst instincts. If Greece had been forced into line by financial fear mongering, Europe would have sinned in a way that would sully its reputation for generations. Instead, it’s something we can, perhaps, eventually regard as an aberration. And if Greece ends up exiting the euro? There’s actually a pretty good case for Grexit now — and in any case, democracy matters more than any currency arrangement.

Read more …

ECB needs to start acting as a central bank.

• Ending Greece’s Bleeding (Paul Krugman)

Europe dodged a bullet on Sunday. Confounding many predictions, Greek voters strongly supported their government’s rejection of creditor demands. And even the most ardent supporters of European union should be breathing a sigh of relief. Of course, that’s not the way the creditors would have you see it. Their story, echoed by many in the business press, is that the failure of their attempt to bully Greece into acquiescence was a triumph of irrationality and irresponsibility over sound technocratic advice. But the campaign of bullying — the attempt to terrify Greeks by cutting off bank financing and threatening general chaos, all with the almost open goal of pushing the current leftist government out of office — was a shameful moment in a Europe that claims to believe in democratic principles. It would have set a terrible precedent if that campaign had succeeded, even if the creditors were making sense.

What’s more, they weren’t. The truth is that Europe’s self-styled technocrats are like medieval doctors who insisted on bleeding their patients — and when their treatment made the patients sicker, demanded even more bleeding. A “yes” vote in Greece would have condemned the country to years more of suffering under policies that haven’t worked and in fact, given the arithmetic, can’t work: austerity probably shrinks the economy faster than it reduces debt, so that all the suffering serves no purpose. The landslide victory of the “no” side offers at least a chance for an escape from this trap. But how can such an escape be managed? Is there any way for Greece to remain in the euro? And is this desirable in any case?

The most immediate question involves Greek banks. In advance of the referendum, the European Central Bank cut off their access to additional funds, helping to precipitate panic and force the government to impose a bank holiday and capital controls. The central bank now faces an awkward choice: if it resumes normal financing it will as much as admit that the previous freeze was political, but if it doesn’t it will effectively force Greece into introducing a new currency. Specifically, if the money doesn’t start flowing from Frankfurt (the headquarters of the central bank), Greece will have no choice but to start paying wages and pensions with i.o.u.s, which will de facto be a parallel currency — and which might soon turn into the new drachma.

Suppose, on the other hand, that the central bank does resume normal lending, and the banking crisis eases. That still leaves the question of how to restore economic growth. In the failed negotiations that led up to Sunday’s referendum, the central sticking point was Greece’s demand for permanent debt relief, to remove the cloud hanging over its economy. The troika — the institutions representing creditor interests — refused, even though we now know that one member of the troika, the International Monetary Fund, had concluded independently that Greece’s debt cannot be paid. But will they reconsider now that the attempt to drive the governing leftist coalition from office has failed?

Read more …

Good analysis.

• Thomas Piketty: “Germany Has Never Repaid.” (Medium)

In a forceful interview with German newspaper Die Zeit, the star economist Thomas Piketty calls for a major conference on debt. Germany, in particular, should not withhold help from Greece. This interview has been translated from the original German. Since his successful book, “Capital in the Twenty-First Century,” the Frenchman Thomas Piketty has been considered one of the most influential economists in the world. His argument for the redistribution of income and wealth launched a worldwide discussion. In a interview with Georg Blume of DIE ZEIT, he gives his clear opinions on the European debt debate.

DIE ZEIT: Should we Germans be happy that even the French government is aligned with the German dogma of austerity?
Thomas Piketty: Absolutely not. This is neither a reason for France, nor Germany, and especially not for Europe, to be happy. I am much more afraid that the conservatives, especially in Germany, are about to destroy Europe and the European idea, all because of their shocking ignorance of history.

ZEIT: But we Germans have already reckoned with our own history.
Piketty: But not when it comes to repaying debts! Germany’s past, in this respect, should be of great significance to today’s Germans. Look at the history of national debt: Great Britain, Germany, and France were all once in the situation of today’s Greece, and in fact had been far more indebted. The first lesson that we can take from the history of government debt is that we are not facing a brand new problem. There have been many ways to repay debts, and not just one, which is what Berlin and Paris would have the Greeks believe. “Germany is the country that has never repaid its debts. It has no standing to lecture other nations.”

ZEIT: But shouldn’t they repay their debts?
Piketty: My book recounts the history of income and wealth, including that of nations. What struck me while I was writing is that Germany is really the single best example of a country that, throughout its history, has never repaid its external debt. Neither after the First nor the Second World War. However, it has frequently made other nations pay up, such as after the Franco-Prussian War of 1870, when it demanded massive reparations from France and indeed received them. The French state suffered for decades under this debt. The history of public debt is full of irony. It rarely follows our ideas of order and justice.

ZEIT: But surely we can’t draw the conclusion that we can do no better today?
Piketty: When I hear the Germans say that they maintain a very moral stance about debt and strongly believe that debts must be repaid, then I think: what a huge joke! Germany is the country that has never repaid its debts. It has no standing to lecture other nations.

Read more …

Unspeakable sadness fills my heart.

• We May Soon Be Able To See Polar Bears Only In Picture Books (MD)

According to a recent report, polar bears may soon go extinct if global warming continues at the current flabbergasting rate. And about one third of the furry animals face risk of extinction in no more than ten years, the report also showed. Study authors said that reducing the rate of climate change may save polar bears on the long run. Other methods of trying to shield them from an ever warming ocean and dwindling food stocks have only short-term effects, researchers explained. As ice sheets continue to melt, polar bears are forced to retreat inland to find something to eat. While that may be a temporary solution during winter time, in summer months the move is no longer viable.

Loss of sea ice, which the bears use in their hunt for prey, and fewer food sources both inland and out in the sea are two major factors that may force polar bears to soon go extinct. But there are also some other threats including oil rigs, new diseases and trans-Arctic vessels. Yet these factors only pose a “negligible” threat on polar bear populations, study authors wrote in their report. The hidden enemy, authors claim, are greenhouse emissions. In an attempt to assess their effects on the bears’ habitat loss, scientists employed two models. In the first model, emissions were at the current levels we all experience. The second model tried to simulate Arctic conditions if those emissions were lower and climate change more stable.

The first model showed that at the current pace of sea ice loss and food stock reduction some polar bear populations would soon reach a dramatic decline by 2025. In the second model, the scenario emerged roughly 25 years later. Yet both models shared the same conclusion – some polar bear populations may soon go extinct. Even though we may reduce harmful gas emissions by that time, populations would still be affected, scientists said,

Read more …

With Yanis Gone, Now Troika Heads Must Roll

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


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

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

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

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

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

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

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

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

Here is Yanis’ explanation behind his resignation:

Minister No More! (Yanis Varoufakis)

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

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

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

Here’s to a real man!

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

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

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

– Joe Jackson

Independence Day, Twice Removed

Jul 052015
 
 July 5, 2015  Posted by at 12:04 pm Finance Tagged with: , , , , , ,  16 Responses »


Unknown Magazine and cannonballs at Battery Rodgers, Alexandria 1863

I hardly ever go out in the morning, the first 7-8 hours of every single day are taken up by reading and writing. But today I did, to feel the mood in the city. Not sure I got it, though. Everything’s quiet. It may not help that I’m staying smack in the middle of the Acropolis tourist area (still haven’t figured out why 90% of them are American).

Not sure if many Greeks even really understand what is going on, and who can blame them, they have every reason to be scared more than anything else.

And I’m still trying to wrap my head around the trouble just about everyone seems to have with the simplest and most basic exercise in direct democracy that’s taking place right now. The referendum here today has been called manipulative, opaque, some say there’s not enough time, others claim Tsipras is merely trying to save face in the face of defeat, courts have been called in to rule on its legality.

But this place here is where democracy started. And votes were held just like the one today, all the time. To be rid of despot rule, to let the people decide. And sure, in the beginning it wasn’t all the people, just the alleged wise men, but it was a start. So why do we now find this simplicity so hard to stomach?

Put another way: is this because for Americans the 4th of July is these days more about stuffing your faces surrounded by your equally overweight families than it is about honoring the Founding Fathers? It’s quite possible, that our troubles with processing and absorbing direct democracy are somehow linked to that.

That Americans and Europeans have precious little understanding and appreciation left of what happened that led to the US celebrating, commemorating, its Independence Day in the first place. And therefore can’t see how and why it couldn’t have been accomplished without the example set right here in Greece many many years earlier.

Maybe that’s why a thousand pundits feel free to question the very principle of democracy. Or to at least try and hang all sorts of conditions and reservations on it. But it’s not that hard really: a government asks its people what they think about a certain issue.

That’s a democratically elected government’s prerogative. It couldn’t really get any more basic than that. And of all the freedoms we have, maybe the one that makes us question the very principle those very freedoms are derived from, is not the best choice. Maybe there are better and more productive freedoms to occupy ourselves with.

And it can’t be that the unfolding Greek drama hasn’t given us enough material to hold against the light of democratic principles. The Troika machinations, culminating in the oppression of data vital to the negotiations, from those same negotiations, is just one example. A damning one, though, but still.

For democracy to function, it must first of all be allowed to function. That requires revealing all relevant information. It also requires all parties who are not party to a vote to keep their mouths shut. If you look at it from that point of view, Brussels and Berlin seem to have little understanding and respect for what democracy is. For them it seems to be something to be manipulated with impunity.

And that does matter: democracy, to function, needs to be respected. Mere lip service doesn’t cut it.

Whatever the result of the vote is today, Greece is in for more hard times. A No vote would lead the little, little people in Brussels to engage in more strong arm tactics. And I see no reason to doubt that voting Yes is tantamount to sticking one’s head in a noose.

Who would want to live at the mercy of an institution populated by little people who actively try to keep vital numbers behind in a discussion held against the backdrop of hunger, suicide and despair in a country whose interests it is supposed to serve? But that’s just me. And I don’t have a vote.

If you look through Greek history, the country could claim an entire calendar full of Independence Days. The US has just the one, and it owes it to the ancient Greeks. Maybe that’s something to ponder when waking up from those glucose-induced stupors this morning.

That like it or not, this is where the democracy was born that allowed for America to become a nation of free people. The same democracy celebrated from sea to shining sea every Fourth of July. And also the same democracy that is under threat, in Greece, in Europe as a whole, and very much in the US too.

It looks to me that we’ve all become quite far removed from what Independence Day is about, in Brussels, Berlin and Washington. And we should feel lucky if Athens today can give us back some of what has been lost in the translation and erosion of history.

Democracy is a fragile child. It needs to be fed and nurtured and caressed around the clock. Or it will wither away before our very eyes. The Greeks taught us all a valuable lesson before. Here’s hoping they can again.

And at the same time add yet another Independence Day to their long and rich calendar.

This Is Why The Euro Is Finished

Jul 042015
 
 July 4, 2015  Posted by at 9:35 am Finance Tagged with: , , , , , , , ,  15 Responses »


Walker Evans Waterfront in New Orleans. French market sidewalk scene 1935

The IMF Debt Sustainability Analysis report on Greece that came out this week has caused a big stir. We now know that the Fund’s analysts confirm what Syriza has been saying ever since they came to power 5 months ago: Greece needs debt relief, lots of it, and fast.

We also know that Europe tried to silence the report. But what’s most interesting is that this has been going on for months, as per Reuters. Ergo, the IMF has known about the -preliminary- analysis for months, and kept silent, while at the same time ‘negotiating’ with Greece on austerity and bailouts.

And if you dig a bit deeper still, there’s no avoiding the fact that the IMF hasn’t merely known this for months, it’s known it for years. The Greek Parliamentary Debt Committee reported three weeks ago that it has in its possession an IMF document from 2010(!) that confirms the Fund knew even at that point in time.

That is to say, it already knew back then that the bailout executed in 2010 would push Greece even further into debt. Which is the exact opposite of what the bailout was supposed to do.

The 2010 bailout was the one that allowed private French, Dutch and German banks to transfer their liabilities to the Greek public sector, and indirectly to the entire eurozone‘s public sector. There was no debt restructuring in that deal.

Reuters yesterday reported that “Publication of the draft Debt Sustainability Analysis laid bare a dispute between Brussels and [the IMF] that has been simmering behind closed doors for months..

But that’s not the whole story. Evidently, there was a major dispute inside the IMF as well. The decision to release the report was apparently taken without even a vote, because it was obvious the Fund’s board members wanted the release. The US played a substantial role in that decision. Why the timing? Hard to tell.

The big question that arises from this is: what has been Christine Lagarde’s role in this charade? If she has been instrumental is keeping the analysis under wraps, she has done the IMF a lot of reputational damage, and it’s getting hard to see how she could possibly stay on as IMF chief. She has seen to it that the Fund has lost an immense amount of trust in the world. And without trust, the IMF is useless.

And while we’re at it, ECB chief Mario Draghi, who is also a major Troika negotiator, made a huge mistake this week in -all but- shutting down the Greek banking system, a decision that remains hard to believe to this day. The function of a central bank is to make sure banks are liquid, not to consciously and willingly strangle them.

How Draghi, after this, could stay on as ECB head is as hard to see as it is to do that for Lagarde’s position. And we should also question the actions and motives of people like Jean-Claude Juncker and Jeroen Dijsselbloem.

They must also have known about the IMF’s assessment, and still have insisted there be no debt relief on the negotiating table, although the analysis says there cannot be a viable deal without it.

One can only imagine Varoufakis’ frustration at finding the door shut in his face every single time he has brought up the subject. Because you don’t really need an IMF analysis to see what’s obvious.

Which is exactly why there is a referendum tomorrow: Alexis Tsipras refused to sign a deal that did not include debt restructuring. It would be comedy if it weren’t so tragic, most of all for the people of Greece. Here’s from Reuters yesterday:

Europeans Tried To Block IMF Debt Report On Greece

Euro zone countries tried in vain to stop the IMF publishing a gloomy analysis of Greece’s debt burden which the leftist government says vindicates its call to voters to reject bailout terms, sources familiar with the situation said on Friday. The document released in Washington on Thursday said Greece’s public finances will not be sustainable without substantial debt relief, possibly including write-offs by European partners of loans guaranteed by taxpayers. It also said Greece will need at least €50 billion in additional aid over the next three years to keep itself afloat. Publication of the draft Debt Sustainability Analysis laid bare a dispute between Brussels and the IMF that has been simmering behind closed doors for months.

Greek Prime Minister Alexis Tsipras cited the report in a televised appeal to voters on Friday to say ‘No’ to the proposed austerity terms, which have anyway expired since talks broke down and Athens defaulted on an IMF loan this week. It was not clear whether an arcane IMF document would influence a cliffhanger poll in which Greece’s future in the euro zone is at stake with banks closed, cash withdrawals rationed and commerce seizing up. “Yesterday an event of major political importance happened,” Tsipras said. “The IMF published a report on Greece’s economy which is a great vindication for the Greek government as it confirms the obvious – that Greek debt is not sustainable.”

At a meeting on the IMF’s board on Wednesday, European members questioned the timing of the report which IMF management proposed at short notice releasing three days before Sunday’s crucial referendum that may determine the country’s future in the euro zone, the sources said. There was no vote but the Europeans were heavily outnumbered and the United States, the strongest voice in the IMF, was in favor of publication, the sources said.

The reason why all Troika negotiators should face very serious scrutiny is that they have willingly kept information behind that should have been crucial in any negotiation with Greece. The reason is obvious: it would have cost Europe’s taxpayers many billions of euros.

But that should never be a reason to cheat and lie. Because once you do that, you’re tarnished for life. So in an even slightly ideal world, they should all resign. Everybody who’s been at that table for the Troika side.

And I can’t see how Angela Merkel would escape the hatchet either. She, too, must have known what the IMF analysts knew. And decided to waterboard the Greek population rather than be forced to explain at home that her earlier decisions (2010) failed so dramatically that her voters would now have to pay the price for them. No, Angela likes to be in power. More than she likes for the Greeks to have proper healthcare.

Understandable, perhaps, but unforgivable as well. Someone should take this entire circus of liars and cheaters and schemers to court. They’re very close to killing the entire EU with their machinations. Not that I mind, the sooner it dies the better, but the people involved should still be held accountable. It’s not even the EU itself which is at fault, or which is a bad idea, it’s these people.

But fear not, there’s no tragedy that doesn’t also have a humorous side. And I don’t mean that to take anything away from the Greek people’s suffering.

Brett Arends at MarketWatch wrote a great analysis of his own, and get this, also based on IMF numbers. Turns out, the biggest mistake for Greece and Syriza is to want to stay inside the eurozone. The euro has been such a financial and economic disaster, it’s hard to fathom that nobody has pointed this out before. Stay inside, and there’s no way you can win.

I find this a hilarious read in face of what I see going on here in Greece. It makes everything even more tragic.

Stop Lying To The Greeks — Life Without The Euro Is Great

Will the euro-fanatics please stop lying to the people of Greece? And while they’re at it, will they please stop lying to the rest of us as well? Can they stop pretending that life outside the euro — for the Greeks or any other European country — would be a fate worse than death? Can they stop claiming that if the Greeks go back to the drachma, they will be condemned to a miserable existence on the dark backwaters of European life, a small, forgotten and isolated country with no factories, no inward investment and no hope? Those dishonest threats are being leveled this week at the people of Greece, as they gear up for the weekend’s big referendum on more austerity.

The bully boys of Brussels, Frankfurt and elsewhere are warning the Greek people that if they don’t do as they’re told, and submit to yet more economic leeches, they may end up outside the euro … at which point, of course, life would stop. Bah.

Take a look at the chart. It compares the economic performance of Greece inside the euro with European rivals that don’t use the euro. Those other countries cover a wide range of situations, of course – from rich and stable Denmark, to former Soviet Union countries, to Greece’s neighbor Turkey, which isn’t even in the EU. But they all have one thing in common.

During the past 15 years, while Greece has been enjoying the “benefits” of having Brussels run their monetary policies, those poor suckers have all been stuck running their own affairs and managing their own currencies (if you can imagine). And you can see just how badly they’ve suffered as a result.

They’ve crushed it. Romania, Turkey, Poland, Sweden, Croatia — you name it, they’ve all posted vastly better growth rates than Greece. The data come from the IMF itself. It measures growth in gross domestic product, per person, in constant prices (in other words, with price inflation stripped out). Greece adopted the euro in 2001.

And after 14 years in the same club as the big boys, they are back right where they started. Real per-person economic growth over that time: Zero. Meanwhile Romania, with the leu, has only … er … doubled. Everyone else is up. The Icelanders, who suffered the worst financial catastrophe on the planet in 2008, have nonetheless managed to grow.

Yes, all data points have caveats. Each country has its own story and its own advantages and disadvantages. But the overall picture is clear: The euro has either caused Greece’s disastrous economic performance, or at least failed to prevent it.

What I find amazing about the euro-fanatics is that they just don’t seem to care about facts at all. They carry on repeating the same claims about the alleged miracle cure of their currency, no matter what happens. You can hit them over the head with the latest IMF World Economic Outlook and they carry on droning, unfazed.

I was in England during the 1990s when those people were warning that if the Brits didn’t give up the pound sterling and join the euro, they were doomed as well. For a laugh, I just went through news archives on Factiva and refreshed my memory.

Britain without the euro would be an “orphan country,” petted, humored but ignored, warned one leading figure. Britain would lose all influence and status. It would become a marginal country outside the mainstream of Europe. It would lose “a million jobs.” Factories would close. The car industry would collapse. Foreign investors would walk away because of Britain’s isolation.

Exports would plummet because of exchange-rate fluctuations. The City of London, Britain’s financial district, would lose out to Frankfurt. The London Stock Exchange would be reduced to a local backwater. Tumbleweeds would blow in the streets. (OK, I made that one up.)

And here we are today. Since 1992, when the single currency project began taxiing for takeoff, the countries on board have seen total economic growth of 40%, says the IMF. Poor old Great Britain, stuck back at the departure lounge with its miserable pound sterling? Just 67%. Bah.

This currency that Greece is fighting so hard to be part of is in fact strangling it. The reason for this lies in the structure of the EMU. Which makes it impossible for individual countries to adapt to changing circumstances. And circumstances always change. As a country, you need flexibility, you need to be able to adapt to world events.

You need to be able to devalue, you need a central bank to be your lender of last resort. Mario Draghi has refused to be Greece’s lender of last resort. That can’t be, that’s impossible. there is no valid economic reason for such an action, it’s criminal behavior. But the eurozone structure allows for such behavior.

In ‘real life’, where a country has its own central bank, the only reason for it to refuse to be lender of last resort would be political. And it is the same thing here. It’s about power. That’s why Greece’s grandmas can’t get to their meagre pensions. There is no economic reason for that.

In the eurozone, there’s only one nation that counts in the end: Germany. The eurozone has effectively made it possible for Angela Merkel to save her domestic banks from losses by unloading them upon the Greeks. This would not have been possible had Greece not been a member of the eurozone.

That this took, and still takes, scheming and cheating, is obvious. But that is at the same time the reason why either all Troika negotiators must be replaced, and by people who don’t stoop to these levels, or, and I think that’s the much wiser move, countries should leave the eurozone.

Look, it’s simple, the euro is finished. It won’t survive the unmitigated scandal that Greece has become. Greece is not the victim of its own profligacy, it’s the victim of a structure that makes it possible to unload the losses of the big countries’ failing financial systems onto the shoulders of the smaller. There’s no way Greece could win.

The damned lies and liars and statistics that come with all this are merely the cherry on the euro cake. It’s done. Stick a fork in it.

The smaller, poorer, countries in the eurozone need to get out while they can, and as fast as they can, or they will find themselves saddled with ever more losses of the richer nations as the euro falls apart. The structure guarantees it.

Debt Rattle July 3 2015

Jul 032015
 
 July 3, 2015  Posted by at 10:22 am Finance Tagged with: , , , , , , , , ,  13 Responses »


Harris&Ewing Buying Army surplus food sold at fish market 1919

• Greek Banks Down To €500 Million In Cash Reserves As Economy Crashes (AEP)
• Cash Crunch Hits Everyday Life in Greece (WSJ)
• Troika Maneuvering to Rig Greek Referendum (Martin Armstrong)
• Greece’s Highest Court To Rule On Legality Of Referendum (Guardian)
• When Greece Forgave Germany’s Debt (AP)
• Greece Shows ECB’s Stress Tests Were Nonsense (FT)
• Only the No Can Save the Euro (James K. Galbraith)
• The Greek Vote (Steve Keen)
• Greece Needs $40 Billion in Fresh Euro-Area Money, IMF Says (Bloomberg)
• IMF Says Greece Needs Extra €60 Billion In Funds And Debt Relief (Guardian)
• Why Not Donate To Something That Will Make A Real Difference To Greeks (PP)
• China May Aid Greece Directly – Think Tank Expert (Sputnik)
• Schulz Says Tsipras Should Resign After ‘Yes’ Vote, Wants Technocrats (AFP)
• US Part-Time Jobs Surge By 161,000; Full-Time Jobs Tumble By 349,000 (ZH)
• Causes and Consequences of Income Inequality: A Global Perspective (IMF)
• China’s Stocks Hit Critical Low Despite Government Lifelines (SCMP)
• China’s Boom Has World Bank Worried (Pesek)
• Chinese Stocks Just Lost 10 Times Greece’s GDP (Bloomberg)
• Top Economist Warns Of New Zealand Recession Risk (NZ Herald)
• Benjamin Lawsky’s Legacy (NY Times)
• Arise Steve Keen, Forecaster Of The Year (SMH)

The referendum will be held against the backdrop of a warzone.

• Greek Banks Down To €500 Million In Cash Reserves As Economy Crashes (AEP)

Greece is sliding into a full-blown national crisis as the final cash reserves of the banking system evaporate by the hour and swathes of industry start to shut down, precipitating the near disintegration of the ruling coalition. Business leaders have been locked in talks with the Bank of Greece, pleading for the immediate release of emergency liquidity funds (ELA) to cover food imports and pharmaceutical goods before the tourist sector hits a brick wall. Officials say the central bank will release the funds as soon as Friday, but this is a stop-gap measure at best. “We are on a war footing in this country,” said Yanis Varoufakis, the Greek finance minister. The daily allowance of cash from many ATM machines has already dropped from €60 to €50, purportedly because €20 notes are running out.

Large numbers are empty. The financial contagion is spreading fast as petrol stations and small businesses stop accepting credit cards. Constantine Michalos, head of the Hellenic Chambers of Commerce, said lenders are simply running out of money. “We are reliably informed that the cash reserves of the banks are down to €500m. Anybody who thinks they are going to open again on Tuesday is day-dreaming. The cash would not last an hour,” he said. “We are in an extremely dangerous situation. Greek companies have been excluded from the electronic transfers of Europe’s Target2 system. The entire Greek business community is unable to import anything, and without raw materials they can’t produce anything,” he said.

Pavlos Deas, owner of an olive processing factory in Chalkidiki, told The Telegraph that he may have to shut down a plant employing 250 people within days. “We can’t send any money abroad to our suppliers. Three of our containers have been stopped at customs control because the banks can’t give a bill of landing. One is full of Spanish almonds, the others full of Chinese garlic,” he said. “We don’t know how we are going to execute and export an order of 60 containers for the US. We don’t even have enough gas. We asked for 10,000 litres but they are only letting us have 2,000. It’s being rationed by the day. Factories are closing around us in a domino effect and we’re all going to lose everything if this goes on,” he said.\

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Financial warfare.

• Cash Crunch Hits Everyday Life in Greece (WSJ)

At an automated teller machine underneath the Acropolis, Angeliki Andreaki clutched her debit card with both hands. She pays her bills in cash, and €330 in rent and €39 in telephone bills were due Wednesday. “Tsipras has turned this country into North Korea,” the 83-year-old Ms. Andreaki said Tuesday, shaking her head about Greece’s prime minister, Alexis Tsipras. “I can’t believe at this age I have to line up to get rationed cash.” She withdrew as much as she could—just €60 ($66)—and went straight to pay her phone bill. She said she would have to come back for five more days to get enough cash for the rent. This is everyday life in Greece since it shut down its banking system and imposed controls to prevent money from flooding out of the country.

Greece’s ruling party continued to say it was offering new compromises to its creditors and urged a “no” vote in Sunday’s referendum. European leaders dismissed the overtures as insufficient and said they would hold off on further negotiations until the vote. The first opinion surveys in Greece since Mr. Tsipras called for the referendum show conflicting results but suggest the outcome could be close. The freezing of Greece’s banking system is the most dramatic moment of the country’s five-year debt crisis—and perhaps its most pivotal. Since Monday, Greeks can get only €60 a day at cash machines and can’t transfer money abroad. How long the remaining cash lasts and how unsettled Greeks become will be big factors in Sunday’s referendum on creditors’ demands for more austerity in exchange for more bailout funds.

The tighter the squeeze, the more Greeks might vote “yes” to reconcile with creditors, analysts say. As of Wednesday, Greece’s banking system had about €1 billion in cash left, according to a person familiar with the situation. Even with the €60-a-day limit on ATM withdrawals from Greek’s closed banks, “it’s a matter of a few days” until the money runs out, this person said. By Wednesday, many ATMs in central Athens had constant lines of people waiting to withdraw their daily limit. The crunch has suffused the economy. Merchants report lower spending. Wholesalers can’t pay for supplies. Importers’ foreign counterparts won’t trade.

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“..expect biased vote counting in favor of a “YES” vote to stay in the euro..”

• Troika Maneuvering to Rig Greek Referendum (Martin Armstrong)

In a TV interview, Mr. Varoufakis said very clearly, “This is a very dark moment for Europe. They have closed our banks for the sole purpose of blackmailing what? Getting a ‘Yes’ vote on a non-sustainable solution that would be bad for Europe.” I must admit, most politicians do not come even close to the truth, but Varoufakis seems to be the ONLY finance minister who understands the demands of the Troika are not plausible for any nation. Merkel has tried to skirt any responsibility by saying this is a Troika decision. One must seriously ask, are those in the Troika just totally brain-dead? Their blackmail and economic war against Greece will be evidence to ensure that Britain leaves the EU. The ONLY thing that saved Britain was Maggie Thatcher’s effort to keep Britain out of the euro for she knew far too well where it would lead.

The view in Poland is also now anti-euro. Any Brit who now does not vote to get out of the EU and the grips of the Troika is ignorant of world events and the political power play going on. The EU leaders will not travel to Athens until after the referendum. Suddenly they realize that their powers are so off the wall that they dare not expose their own schemes. Hollande of France wants a resolution for he fears a Frexit is gaining momentum. Obama wants a resolution, fearing Greece will be forced into the arms of Russia, breaking down NATO. Yet through all of this, there is no hope because those in power are clueless. The Troika refuses to solve the euro crisis because they only see their own self-interest and assume they can force their will upon all the people.

The Troika is doing everything in their power to rig the Greek referendum to make it appear that the Greek people want Brussels. The Troika deliberately closed the banks to punish the people of Greece, and to show them what exiting the euro means. This appears to be their only way of diverting the crisis with orchestrating a fake “YES” vote to economic suicide. The Troika will attempt to rig the referendum as they did with the Scottish elections. So expect biased vote counting in favor of a “YES” vote to stay in the euro. As Stalin said, “Those who vote decide nothing. Those who count the vote decide everything.”

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Maybe teh Troika can move in on that as well.

• Greece’s Highest Court To Rule On Legality Of Referendum (Guardian)

Greece’s highest administrative court will rule on whether the country’s bailout referendum violates the constitution, amid growing concern that the hastily organised vote falls short of democratic standards. With less than 48 hours until polling day on Sunday, the yes and no sides will stage large rallies in Athens on Friday evening. The Greek prime minister, Alexis Tsipras, is expected to turn out at the no rally, having attacked his eurozone partners for trying to “blackmail” his country into accepting a bad deal. Greeks are being asked whether to support an EU bailout deal that would grant the debt-stricken country money in exchange for spending cuts and further reform. However, the bailout plan no longer exists, having lapsed on 30 June.

Eurozone leaders have lined up to say that voting no means saying goodbye to Greece’s eurozone membership, but Greece’s radical left Syriza-led government insists a no vote would simply boost its negotiating hand. Later on Friday, the Council of State will determine whether the vote violates Greece’s constitution, which bans referendums on fiscal policy. Europe’s top human rights body, the Council of Europe, has already said the vote falls short of international standards, because the poll was called at short notice and the questions asked are not clear. The Strasbourg-based organisation, which is not part of the European Union, recommends that voters should be sent “balanced campaign material” at least two weeks before a vote. Instead Greeks will have had just eight days to decide on a question couched in jargon-heavy “financialese”.

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And the Greeks didn’t murder anyone.

• When Greece Forgave Germany’s Debt (AP)

Forgiving debt, if done right, can get an economy back on its feet. The IMF certainly thinks so, according to a new report in which it argues Greece should get help. But Germany, another major creditor to Greece, is resisting, even though it should know better than most what debt relief can achieve. After the hell of World War II, the Federal Republic of Germany – commonly known as West Germany – got massive help with its debt from former foes. Among its creditors then? Greece. The 1953 agreement, in which Greece and about 20 other countries effectively wrote off a large chunk of Germany’s loans and restructured the rest, is a landmark case that shows how effective debt relief can be. It helped spark what became known as the German economic miracle.

So it’s perhaps ironic that Germany is now among the countries resisting Greece’s requests for debt relief. Greek Finance Minister Yanis Varoufakis claims debt relief is the key issue that held up a deal with creditors last week and says he’d rather cut off his arm than sign a deal that does not tackle the country’s borrowings. The IMF backed the call to make Greece’s debt manageable with a wide-ranging report on Thursday that also blames the Greek government for being slow with reforms. Despite years of budget cuts, Greece’s debt burden is higher than when its bailout began in 2010 – more than €300 billion, or 180% of annual GDP – because the economy has shrunk by a quarter. Here’s a look at when Germany got debt relief, and how such action might help Greece.

The 1953 London Agreement, hammered out over months, was generous to West Germany. It cut the amount it owed, extended the repayment schedule and granted low interest rates. And crucially, it linked West Germany’s debt repayment schedule to its ability to pay – tying repayments to the trade surplus it was running and expected to run. That created an incentive for trading partners to buy German goods. The deal effectively blocked claims for reparations for the destruction the Nazis inflicted on others. But it wasn’t a one-way street. “The London Agreement gave Germany sweeping debt forgiveness and protection from creditors, in exchange for pro-market reforms,” Professor Albrecht Ritschl, of the London School of Economics said.

West Germany was able to borrow on international markets again, and, free of onerous debt payments, saw its economy grow strongly. Development activists cite that case when arguing for easier terms for troubled countries today, including Greece. “The same opportunity should be given to Greece that was given to Germany in 1953,” said Eric LeCompte, executive director of the debt relief organisation Jubilee USA.

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“..there wouldn’t be any reason to fear default and pull deposits.”

• Greece Shows ECB’s Stress Tests Were Nonsense (FT)

The key challenge is figuring out whether a private bank is solvent in the heat of the moment. That, of course, was the whole point of the asset quality review and the comprehensive assessment. The methodology may not have been perfect but the ECB’s leaders can’t endorse the results without also agreeing that the banks that passed the tests will have unrestricted access to liquidity facilities from the central bank. It’s a trade-off: you get government support in a crisis in exchange for regulatory approval that your business is sound. That, in turn, ought to prevent the risk of runs. In Greece, the ECB doesn’t seem to be honoring this deal. Forget whether or not Greece would be better off leaving the euro.

The government has said it doesn’t want to leave and, strictly speaking, there is no reason it would have to leave even if it defaulted on certain outstanding sovereign debts. The only thing that would force an exit would be if the banks were in danger of failing and the government decided to restore monetary sovereignty in order to provide liquidity. (Default on only some debts wouldn’t have to hit the banks.) Even so, some Greek citizens have been converting their euro deposits into paper euros because they are worried about exit and devaluation. That could be self-fulfilling if it endangered the stability of the banks. However, it wouldn’t be much of an issue if Draghi’s 2012 promise that “the ECB is ready to do whatever it takes to preserve the euro” were genuine.

Greeks would know that the ECB would do its job — lend unconditionally to the Greek banks it had declared solvent back in October and print enough euro cash to ensure that the payments system would continue to operate smoothly — and there wouldn’t be any reason to fear default and pull deposits. (Yes, it’s possible that the ECB could end up lowering the initial costs of exit if central bank liquidity ended up replacing all domestic deposits but we’re still a long way off from that.) The ECB’s unwillingness to do its job as a lender of last resort is bad for Greece but it’s even worse as a precedent for other countries in the euro area. Plenty of other countries share Greece’s bad demographics, slow growth, and lots of public debt owed to foreigners, especially once QE proceeds further. Would they too be forced out of the single currency the next time growth ticks downward and the people elect a government unfavoured by elites?

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Following the logic. Must read from Yanis’ close friend and advisor. Yes vote will still break euro.

• Only the No Can Save the Euro (James K. Galbraith)

Greece is heading toward a referendum on Sunday on which the future of the country and its elected government will depend, and with the fate of the euro and the European Union also in the balance. At present writing, Greece has missed a payment to the IMF, negotiations have broken off, and the great and good are writing off the Greek government and calling for a “Yes” vote, accepting the creditors’ terms for “reform,” in order to “save the euro.” In all of these judgments, they are, not for the first time, mistaken. To understand the bitter fight, it helps first to realize that the leaders of today’s Europe are shallow, cloistered people, preoccupied with their local politics and unequipped, morally or intellectually, to cope with a continental problem.

This is true of Angela Merkel in Germany, of François Hollande in France, and it is true also of Christine Lagarde at the IMF. In particular North Europe’s leaders have not felt the crisis and do not know the economics, and in both respects they are the direct opposite of the Greeks. For the North Europeans, the professionals at the “institutions” set the terms, and there is only one possible outcome: to conform. The allowed negotiation was of one type only: more concessions by the Greek side. Any delay, any objection, could be seen only as posturing. Posturing is normal of course; politicians expect it. But to his fellow finance ministers the idea that the Greek Finance Minister Yanis Varoufakis was not posturing did not occur. When Varoufakis would not stop, their response was loathing and character assassination.

Contrary to some uninformed commentary, the Greek government knew from the beginning that it faced fierce hostility from Spain, Portugal and Ireland, deep suspicion from the mainstream left in France and Italy, implacable obstruction from Germany and the IMF, and destabilization from the European Central Bank. But for a long time, these points were not proved internally. There are influential persons close to Tsipras who did not believe it. There are others who felt that, in the end, Greece would have to take what it could get. So Tsipras adopted a policy of giving ground. He let the accommodation caucus negotiate. And as they came back with concession after concession, he winced and agreed.

Ultimately, the Greek government found that it had to bow to the creditors’ demands for a large and permanent primary surplus target. This was a hard blow; it meant accepting the austerity that the government had been elected to reject. But the Greeks did insist on the right to determine the form of austerity, and that form would be mainly to raise taxes on the wealthiest Greeks and on business profits. At least the proposal protected Greece’s poorest pensioners from further devastating cuts, and it did not surrender on fundamental labor rights. The creditors rejected even this. They insisted on austerity and also on dictating its precise shape. In this they made clear that they would not treat Greece as they have any other European country. The creditors tabled a take-it-or-leave-it offer that they knew Tsipras could not accept. Tsipras was on the line in any case. He decided to take his chances with a vote.

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“So what do you do in a negotiation where (a) you have no choice but to negotiate and (b) your opponent won’t negotiate?”

• The Greek Vote (Steve Keen)

There is an adage in politics that you should never put anything to the vote unless you are sure of the outcome beforehand. On that front, the referendum Greeks will vote in this Sunday is a mistake, because the vote could go either way. If the majority votes No, as Syriza hopes, then it—hopefully—will strengthen its hand in future negotiations with the Troika. But if the majority votes Yes, then Syriza will have to capitulate to the Troika and accept its unbending policy of austerity. But I can also understand Tsipras’s decision to throw the issue over to a vote. Syriza’s expectation, when it won the election, was that its mandate from the Greek people would enable it to bargain with the Troika, and to therefore negotiate a less onerous economic program. Reality has proved otherwise.

Every time Syriza has compromised on one of its “red lines”, the Troika has demanded that it cross the red line behind it. So what do you do in a negotiation where (a) you have no choice but to negotiate and (b) your opponent won’t negotiate? You play whatever wildcard you have in your pack—and the only wildcard that Syriza has is that it was elected by its people, whereas the Troika’s officials were not. If the No vote wins, then it has a further right to insist that it is following the will of its people. We will return to almost daily Greek crises as each debt rollover or instalment payment arises, but Greece will have the power to legitimately threaten total default as a way of forcing the Troika to take a backwards step. But if the vote goes against Syriza, then the political balance in Greece will shift dramatically.

The Greeks will, in effect, have chosen to continue with austerity, even though just six months ago they elected a new government committed to ending it. Though Syriza will remain in power after Saturday, its spirit will have been irrevocably broken. Some political changes will flow immediately. Yanis Varoufakis has confirmed that he will resign—while also accepting the decision of the Greek people and assisting whoever replaces him to sign the terms of capitulation that the Troika wants. But that, as Yanis would vehemently agree, is small-scale, personal stuff. I have always found it amusing, in a perplexing way, that Schaeuble, the Troika’s chief hard man, has taken such umbrage to the left-wing Syriza and its metrosexual political leaders.

Clearly he prefers to negotiate with rightwing politicians like himself. But he seems unaware that, if the Greek tragedy rolls on, he may instead have to negotiate with rightwing politicians unlike himself—the neo-Nazi Golden Dawn. Golden Dawn is also an anti-austerity party, and before the sudden rise of Syriza, it was the premiere anti-austerity party in Greece. It came 3rd in the elections that brought Syriza to power—even though its leaders were in gaol pending a murder trial that began in May—and in the 2014 European Union elections, it scored just under 10% of the Greek vote.

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“The report is a “confession” of the bailout’s failure..”

• Greece Needs $40 Billion in Fresh Euro-Area Money, IMF Says (Bloomberg)

Greece needs at least another €36 billion over the next three years from euro-area states and easier terms on existing debt to keep the nation’s finances sustainable, according to an IMF analysis. Even if Greece delivers on reforms proposed by its international creditors, euro countries will have to come up with new financing and ease the nation’s debt load through steps such as doubling maturities on existing loans, according to a June 26 “preliminary draft” debt-sustainability analysis released Thursday. The Washington-based lender puts Greece’s total financing needs at €50 billion from October 2015 through the end of 2018. It also says state deposits in the Greek banking system had declined to less than €1 billion at the end of May, before the nation closed its banks and imposed capital controls.

Any weakening of the package proposed by the IMF and its creditor partners, the European Commission and ECB, means Europeans must accept a “haircut,” or writedown on the principal of the loans, according to the analysis. The document’s date is the day before Greek Prime Minister Alexis Tsipras called a surprise July 5 referendum on the creditors’ proposal. The analysis suggests any new deal is doomed to keep Greece wallowing in debt unless the Greek government and its European creditors can make further concessions. It also indicates the IMF, smarting from a $1.7 billion missed payment by Greece this week, may be reluctant to dispense new money without better prospects that the nation’s debt will be brought under control.

The timing of the analysis will prove controversial, since Tsipras is sure to use it to bolster his argument that Greeks should reject the creditors’ proposal in Sunday’s vote, said Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute for International Economics in Washington. The IMF is suggesting that “Greece was essentially on track last November until Syriza blew up the political system and now the economy,” while hinting that it wouldn’t welcome working with the anti-austerity party in the future, he said. The IMF report justifies the Greek government’s position and its persistence in including debt restructuring in any deal with creditors, said Gabriel Sakellaridis, a government spokesman. The report is a “confession” of the bailout’s failure, he said in an e-mail.

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Curious: “Alexis Tsipras welcomed the IMF’s intervention saying in a TV interview that what the IMF said was never put to him during negotiations”.

• IMF Says Greece Needs Extra €60 Billion In Funds And Debt Relief

The IMF has electrified the referendum debate in Greece after it conceded that the crisis-ridden country needs up to €60bn of extra funds over the next three years and large-scale debt relief to create “a breathing space” and stabilise the economy. With days to go before Sunday’s knife-edge referendum that the country’s creditors have cast as a vote on whether it wants to keep the euro, the IMF revealed a deep split with Europe as it warned that Greece’s debts were “unsustainable”. Fund officials said they would not be prepared to put a proposal for a third Greek bailout to the Washington-based organisation’s board unless it included both a commitment to economic reform and debt relief. According to the IMF, Greece should have a 20-year grace period before making any debt repayments and final payments should not take place until 2055.

It would need €10bn to get through the next few months and a further €50bn after that. The Greek prime minister Alexis Tsipras welcomed the IMF’s intervention saying in a TV interview that what the IMF said was never put to him during negotiations. Urging a no vote on Sunday he said: “Voting no to a solution that isn’t viable doesn’t mean saying no to Europe. It means demanding a solution that’s realistic. “Either you give in to ultimatums or you opt for democracy. The Greek people can’t be bled dry any longer.” Tsipras is campaigning for a no vote in the referendum on Sunday, which is officially on whether to accept a tough earlier bailout offer, to impress on EU negotiators that spiralling poverty and a collapse in everyday business activity across Greece has meant further austerity should be ruled out of any new rescue package.

Greece’s finance minister, Yanis Varoufakis, pledged to resign if his country votes yes to the plan proposed by the EU, the ECB and what appears to be an increasingly reluctant IMF. Varoufakis, the academic-turned-politician who has riled his eurozone counterparts, said he would not remain finance minister on Monday if Greece voted yes. He said he would rather “cut off his arm” than accept another austerity bailout without any debt relief for Greece, adding that he was “quite confident” the Greek people would back the government’s call for a no vote. The Greek government’s defiant stance came as the head of the Hellenic Chambers of Commerce, Constantine Michalos, said he did not believe Greece’s banks would be able to reopen next Tuesday without further funding, telling the Daily Telegraph he had been told cash reserves were down to €500m.

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Bit late?!

• Why Not Donate To Something That Will Make A Real Difference To Greeks (PP)

The campaign to crowdfund €1.6 billion for Greece on indiegogo is a wonderful initiative to show solidarity, and indeed it has collected an astonishing amount of money in a short time. The only problem is that if the full amount is not collected, all donations will be returned. Although we’d like to hope that there’s a chance the campaign will reach its target, it is quite a long shot. So we’d like to present you with an alternative way to help Greece right now. The Greek media is corrupt. This might not come as a big shock, maybe there are corrupt media in your country too, but the truth of the situation here goes far beyond what you’d imagine. According to the NGO Reporters Without Borders, Greece ranks 93rd in the global index of press freedom (placing it last in Europe).

Private TV channels, newspapers and radio stations are majority owned by 5 key families, who use them to ensure their family of companies obtain government contracts. These private media outlets are members of large groups of companies who undertake construction projects, and shipowners who control the oil trade and imports. During the last few days, the mainstream media have declared war on citizens, taking a position on the referendum and violating any notion of journalistic ethics. Their reporting is designed to terrorize and create a culture of fear, without any trace of truth or balance, whilst presenting themselves as objective and responsible.

On Monday, the largest TV station was broadcasting misinformation all day about cash withdrawals being reduced from 60 to 20 euros -reports which had been denied three times officially by the government- trying to provoke a bankrun. Nobody can control them. The competent inspection body is at present too weak to impose any sanctions. At the same time the Greek state’s efforts to pursue €102 million in unpaid taxes from these media companies for the use of public frequencies (common practice in other EU countries) has brought zero results. But new technologies have created new communication channels.

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Big worry for US.

• China May Aid Greece Directly – Think Tank Expert (Sputnik)

China may help Greece through EU instruments or directly, a member of the Chinese Academy of Social Sciences, affiliated with China’s State Council, told Sputnik. China may help Greece directly through its new financial instruments, director of the Quantitative Finance Department at China’s Institute of Quantitative and Technical Economics told Sputnik China. Investment bank Goldman Sachs predicted in a report published on Wednesday that in a worst-case scenaria China’s exports would decline 2.2% as a result of Greece’s economic crisis. Other than exports to Greece itself, the crisis could also hurt the economies of nearby countries, where Chinese businessmen have also made considerable investments.

“The Greek crisis has an undoubtedly seriously influence on China’s trade with Greece and investment into the country. But I think that European countries together with China can help Greece overcome the problems that arose,” Fan Mingtao said. Fan added that the crisis is not likely to be an overbearing problem in the long term, although China will suffer losses in trade with Greece as a result. “I believe there are two ways to give Greece Chinese aid. First, within the framework of the international aid through EU countries. Second, China could aid Greece directly. Especially considering the Silk Road Economic Belt and the Asian Infrastructure Investment Bank. China has this ability,” Fan added. According to Fang, China has the financial ability to aid Greece if needed, because of its existing Silk Road Economic Belt project and the Asian Infrastructure Investment Bank.

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Schulz should be fired for such comments. Hoe doesn’t understand what democracy in a sovereign nation means.

• Schulz Says Tsipras Should Resign After ‘Yes’ Vote, Wants Technocrats (AFP)

European Parliament president Martin Schulz said his faith in the Greek government had reached “rock bottom,” and that he hopes it resigns after Sunday’s referendum. Prime Minister Alexis Tsipras has urged citizens to vote against EU and IMF bailout conditions in the plebiscite Sunday. Tsipras announced the balloting after talks with creditors broke down, leading Greece to default on a debt payment and stoking fears it could crash out of the euro. Schulz on Thursday told German Handelsblatt business daily that “new elections would be necessary if the Greek people vote for the reform programme and thus for remaining in the eurozone and Tsipras, as a logical consequence, resigns.”

The time between the departure of Tsipras’ hard-left Syriza party and new elections would have to “be bridged with a technocratic government, so that we can continue to negotiate,” Schulz was quoted as saying. “If this transitional government reaches a reasonable agreement with the creditors, then Syriza’s time would be over,” he said. “Then Greece has another chance.” Schulz charged that Tsipras was “unpredictable and manipulates the people of Greece, in a way which has almost demagogical traits.” “My faith in the willingness of the Greek government to negotiate has now reached rock bottom,” he said Greek Finance Minister Yanis Varoufakis said Thursday the government “may very well” quit if the public went against it in Sunday’s plebiscite by voting for more austerity in return for international bailout funds.

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When will the nonsense stop?

• US Part-Time Jobs Surge By 161,000; Full-Time Jobs Tumble By 349,000 (ZH)

While the kneejerk reaction algos were focusing on the +223K jobs number reported by the Establishment Survey, few if anyone notched that the Household survey reported a decline of 56,000 workers in June.

But what’s worse, is that according to this survey which according to some is far more reliable than its peer, the composition of the US labor force once again deteriorated rapidly with part-time jobs added in June surging by 161,000 while the number of full time jobs tumbled by 349,000.

 

Putting this number in context, while the total number of US workers has long since surpassed its previous crisis high, the number of full time US workers has yet to overtake its November 2007 lever of 121.9 million, and in June dropped to 121.1 million.

 

Why is this a problem: because while the US still has 800k full-time jobs to go to at least regain the prior peak, during the same time period the US civilian, non-institutional population has risen from 232.9 million to 250.7 million: an increase of 17.724 million!

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More proper IMF work. Will also be silenced, just like the Greek debt relief report.

• Causes and Consequences of Income Inequality: A Global Perspective (IMF)

Widening income inequality is the defining challenge of our time. In advanced economies, the gap between the rich and poor is at its highest level in decades. Inequality trends have been more mixed in emerging markets and developing countries (EMDCs), with some countries experiencing declining inequality, but pervasive inequities in access to education, health care, and finance remain. Not surprisingly then, the extent of inequality, its drivers, and what to do about it have become some of the most hotly debated issues by policymakers and researchers alike. Against this background, the objective of this paper is two-fold.

First, we show why policymakers need to focus on the poor and the middle class. Earlier IMF work has shown that income inequality matters for growth and its sustainability. Our analysis suggests that the income distribution itself matters for growth as well. Specifically, if the income share of the top 20% (the rich) increases, then GDP growth actually declines over the medium term, suggesting that the benefits do not trickle down. In contrast, an increase in the income share of the bottom 20% (the poor) is associated with higher GDP growth. The poor and the middle class matter the most for growth via a number of interrelated economic, social, and political channels.

Second, we investigate what explains the divergent trends in inequality developments across advanced economies and EMDCs, with a particular focus on the poor and the middle class. While most existing studies have focused on advanced countries and looked at the drivers of the Gini coefficient and the income of the rich, this study explores a more diverse group of countries and pays particular attention to the income shares of the poor and the middle class—the main engines of growth.

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it’s going downhill fast now.

• China’s Stocks Hit Critical Low Despite Government Lifelines (SCMP)

A series of lifelines from Beijing failed to stop the slide in the mainland’s stock market on Thursday, with the key Shanghai Composite Index closing below the critical 4,000 mark for the first time in almost three months. Analysts warned that the nation’s leadership would pay dearly if it failed to stabilise the market and prevent millions of small investors from losing their life savings. “The government’s response to the fall confirms that it will use all the resources at its disposal to influence the market when things do not go the way it wants and potentially puts its legitimacy at risk,” said Steve Tsang, chair of the School of Contemporary Chinese Studies at the University of Nottingham.

The China Securities Regulatory Commission said last night that the stock market had recorded a significant drop, and the commission would launch an investigation into suspected market manipulation. Those suspected of committing an offence would be handed over to public security agencies. The Shanghai Composite Index fell as much as 6.38% at one point in the afternoon session, before finishing down 3.48%, or 140.93 points, at 3,912.77, the lowest level since April 9. The Shenzhen Composite Index shed 5.55%, or 130.32 points, to close at 2,215.81 and ChiNext – the Nasdaq-style bourse for small-cap tech stocks – gave up 4%. Since falling off a seven-year peak of 5,166.35 on June 12, the Shanghai index has lost about a quarter of its value, with the mainland equity markets heading into bear territory after fears of a tightening of margin lending induced a sharp correction.

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No kidding.

• China’s Boom Has World Bank Worried (Pesek)

The World Bank has a timely warning for Chinese President Xi Jinping: Don’t let all that money go to your head. The global lender didn’t refer directly to Shanghai’s stock boom or the Asian Infrastructure Investment Bank (Beijing’s attempt to develop a World Bank of its own). Nor did it have to. By urging Beijing to clamp down on wasteful investment, unsustainable debt, and a shadow banking industry run amok, it was delivering a clear enough warning that President Xi should stop fanning China’s giant asset bubble. The World Bank was also implying China should get its own economic house in order before trying to change the global economy. “China has reached a critical phase of its economic and social development path,” the lender said in a new report released Wednesday.

The economy “will need to be transformed to increase the efficiency of new investments and widen access to finance, enabling China to sustain solid growth and rebalance its economy.” The World Bank’s admonishment was amplified by a fascinating milestone the Chinese economy reached this week — one that presents Xi’s government with a complicated image problem. China’s 90 million mainland stock traders now outnumber its 87.8 million Communist Party members. This changing of the guard, if you will, is taking place the same week the party celebrated its 94th anniversary – hardly what Mao Zedong had in mind when he led the Communists to power in 1949. In truth, China’s fast-growing legions of stock traders are betting on a type of financial Communism.

Everyone knows the Chinese economy is slowing and deflation is approaching, but markets have generally stayed aloft amid perceptions Xi will use the full power of the state to protect investments. Along with weekend interest-rate cuts, authorities have just made it easier to take on even more leverage. Brokerages now have leeway to boost lending by about $300 billion. Yet recent stock market declines suggest those steps aren’t working their usual magic. Part of the problem is traders have realized nobody is shoring up the shaky pillars of the world’s second-biggest economy. As that awareness sinks in, the 24% decline in the Shanghai Composite Index from its June 12 peak (which wiped out more than the equivalent of Brazil’s annual output) will only intensify. So will the headwinds bearing down on the broader economy as plunging shares dent business and household confidence.

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It lost the entire German stock market value too. Though people put up their homes as collateral.

• Chinese Stocks Just Lost 10 Times Greece’s GDP

As Europeans hold their breath awaiting a referendum that will help determine Greece’s future in the euro zone, a stock market slump on the other side of the world is causing barely a ripple in global markets. A dizzying three-week plunge in Chinese equities has wiped out $2.36 trillion in market value — equivalent to about 10 times Greece’s gross domestic product last year. Still, the closed nature of China’s financial markets is allowing the rest of the world to watch in wonder without seeing spillovers into their markets…yet. “What happens in China will turn out to be far more consequential than any sting that Greece may deliver over the coming weeks or months,” said Frederic Neumann, co-head of Asian economic research at HSBC Holdings Plc in Hong Kong.

“As China’s equity markets lose their roar, the risk is that demand more broadly on the Mainland could take a hit. That would knock out an essential engine of world demand over the past decade. As dramatic as events in Greece currently appear, however, ultimately, it’s difficult to see these proving decisive for the world economy.” For now, even within China, economists find it tough to draw a link between its retail-driven stock market swings and the economy. A recent survey by Bloomberg shows analysts split on whether a rout would have any decisive effect on growth. One thing to note: With China opening its capital borders, roller-coaster rides on its stock market will have increasing repercussions for investors from London to New York and Tokyo. But that’s farther out in the future than the more immediate concerns in Greece.

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Betting on one horse. Or cow, rather.

• Top Economist Warns Of New Zealand Recession Risk (NZ Herald)

So much for the rock star economy. As dairy prices continue to slump and business confidence tapers off, a leading economist is warning that a “scenario where a recession becomes imminent” isn’t difficult to imagine. BNZ head of research Stephen Toplis said the biggest shock to New Zealand’s economy had been the ongoing demise of the dairy sector. The price of whole milk powder – which is responsible for about 75% of Fonterra’s farmgate milk price – plunged 10.8% to US$2054 a tonne at the latest GlobalDairyTrade auction this week. The overall index fell 5.9% to record its ninth consecutive decline, driving the New Zealand dollar to a fresh five-year low of US66.59c last night.

Economists are now picking the Reserve Bank to cut the official cash rate back to 2.5% (from 3.25% currently) in a complete reversal of a rate tightening cycle that began in early 2014. BNZ this week lowered its 2015/16 milk price forecast to $5.20kg from $5.70 previously. “In part, the demise of dairy will be having an impact on economy-wide confidence, such as reflected in the recently released ANZ [business confidence] survey,” Toplis said. “In turn these confidence readings are also useful in predicting future GDP [gross domestic product] growth. Unfortunately, the trend in confidence is down.” BNZ is forecasting annual average growth this year of 2.4%, falling to 2.1% over 2016 and 2017.

“That said, the balance of risks around our forecast is becoming more skewed to the downside,” Toplis said. “Indeed, so much so that it is not hard to envisage a scenario where a recession becomes imminent.”

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At least someone tried to do something.

• Benjamin Lawsky’s Legacy (NY Times)

After four years on the job, Benjamin Lawsky, New York’s top financial regulator, stepped down in June. His legacy includes important protections against abusive debt collectors and usurious payday lenders, as well as aggressive enforcement actions against banks and financial firms for money laundering, currency manipulation, interest rate rigging, foreclosure abuses and insurance scams. He has also left Gov. Andrew Cuomo with a moment-of-truth decision. Will Mr. Cuomo appoint a replacement to build on Mr. Lawsky’s legacy or to tone it down? In 2011, Mr. Cuomo merged New York’s bank and insurance agencies into a single agency with expanded regulatory powers. The question at the time was whether the newly created Department of Financial Services would be a political tool — a way for Mr. Cuomo to impinge on the power of the state attorney general — or a true financial regulator.

The answer has been the latter, thanks largely to Mr. Cuomo’s choice of Mr. Lawsky, a onetime Democratic aide and former federal prosecutor, to run the department. But some of the names that are circulating as possible contenders for Mr. Lawsky’s job suggest that this time around, Mr. Cuomo is looking for a light regulatory touch. In addition to lawyers who have spent much of their careers representing and defending corporate clients, it also reportedly includes a former JPMorgan Chase executive. Mr. Lawsky’s tenure — and much of the regulatory history before and since the financial crisis — has disproved the notion that financial-industry professionals are uniquely qualified to regulate banks and financial firms. In fact, regulators from industry have been linked to rulemaking delays and regulatory capture, which occurs when a regulatory agency advances the interests of the industry it is charged with overseeing rather than the public interest.

To avoid those pitfalls, Mr. Cuomo should choose Mr. Lawsky’s successor from the nation’s ranks of prosecutors, legal and consumer advocates or federal or state officials who have shown an aggressive streak toward Wall Street. The choice comes at a crucial time. As memories of the financial crisis fade, banks have increasingly argued that regulation has become too heavy. They expect politicians to respond by easing up on regulatory efforts. That would be a mistake. Regulation today needs to be vigilant for continuation of behaviors from the crisis years and for developments that may portend the next crisis. Mr. Lawsky has left the Department of Financial Services in a position of strength. It is up to Mr. Cuomo to keep it strong.

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“..rates “simply can’t rise without causing deleveraging and a crash”.

• Arise Steve Keen, Forecaster Of The Year (SMH)

What was it Jesus said about a prophet being accepted everywhere but in his home town? Australian expatriate Steve Keen was by far the most successful of last year’s BusinessDay economic forecasters. He did it by being the most pessimistic of the 25, but hardly ever too pessimistic. None of the others thought our terms of trade would collapse by more than a few%. Keen picked 10%. We got 12.25%. The pay cut rocked the budget deficit, but not by as much as most predicted. Keen went for $40 billion. The budget papers say it’ll be $41.1 billion. Wage growth slipped to a new low of just 2.3%. Most of the panel couldn’t see it coming, many going for 3% or more. Only Keen and also University of Newcastle economist Bill Mitchell picked 2%.

Tom Skladzien, of the Australian Manufacturing Workers Union, deserves an honourable mention as well. With his ear to the ground he picked 2.5%. The Reserve Bank cut its cash rate twice in response to the slide in national income. None of the bank economists expected it. Only Keen and Mitchell went for a cut, to 2.25%. The lower rates spurred a sharemarket boom which pushed the S&P/ASX 200 to near 6000 in February before it fell back in May and June to close not too far from where it started at 5459. Keen picked 5500 – far closer than the much higher forecasts of the panellists who didn’t see the interest rate cuts coming. On the bond market the economists employed by banks embarrassed themselves.

Instead of climbing as they all expected, Australia’s 10-year bond rate slid to an all-time low before edging back up to 3.01. Keen picked 3.5%, the only forecast anywhere near reality. He says he takes private debt seriously unlike others who treat it as largely irrelevant to economic outcomes, a “consenting act between adults”. Given the historically unprecedented levels of private debt worldwide, rates “simply can’t rise without causing deleveraging and a crash”. Keen can rightly claim to have foreseen the events in the US which led to the global financial crisis and to have wrongly picked a collapse in Australian house prices in its wake, famously losing a bet and walking from Canberra to Mount Kosciuszko wearing a T-shirt that said: “I was hopelessly wrong about house prices, ask me how.”

Unwanted by the University of Western Sydney, he was snapped by Kingston University in London where he is gaining a reputation as one of Europe’s leading economic thinkers. He didn’t get it all right this year. Mitchell (another non-orthodox economist) was more accurate about economic growth, and almost everyone was more accurate about the US economy, expecting something closer to 3 per cent growth than the 1 per cent Keen forecasted. But Keen is doubling down and predicting 1 per cent again this year. There’s a chance he knows what he is doing. It’s the third time he has won the title of BusinessDay forecaster of the year.

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