Aug 022017
 
 August 2, 2017  Posted by at 9:04 am Finance Tagged with: , , , , , , , , ,  1 Response »


Stanley Kubrick Men’s fashion show, New York 1948

 

New Rule Makes It Easier To Get A Mortgage With Student Loan Debt (F.)
US Auto Market Slump Persists (BBG)
US Plans Trade Measures Against China (WSJ)
US Begins Russia Drawdown After Kremlin Retaliates For Sanctions (R.)
Former Obama Aide Rhodes A Person Of Interest In Unmasking Investigation (C.)
For Sale: Two Half-Finished Nuclear Reactors -Never Used- (BBG)
Nissan Runs One Of ‘Nastiest Anti-Union Campaigns’ In Modern US History (G.)
Monsanto’s Sway Over Research Is Seen in Disclosed Emails (NYT)
Pesticide ‘Drifting’ Wreaks Havoc Across US Crops (BBG)
Bees Are Bouncing Back From Colony Collapse Disorder – A Little (BBG)
8 Migrants Dead Off Libya, 500 Rescued As Italy Prepares Naval Mission (AFP)
EasyJet Passengers Left High And Dry In Greece Due to Mating Turtles (G.)

 

 

Desperately mining for a new generation of greater fools. Courtesy of government-owned Fannie Mae. What a world.

New Rule Makes It Easier To Get A Mortgage With Student Loan Debt (F.)

For millions of Americans drowning in student loan debt, the prospect of getting a mortgage might seem out of reach. Last week, Fannie Mae changed underwriting rules that could make it much easier for people with student loan debt to qualify for a mortgage. The new rule impacts people with federal student loan debt who are currently on an income-driven repayment program. An income-driven repayment plan sets your monthly student loan payment at an amount that is intended to be affordable based upon your income and family size. Depending upon the plan, your monthly payment could be capped as low as 10% of your discretionary income. And if your discretionary income is low enough, your monthly payment could be as low as $0.

In order to qualify for a mortgage, a borrower needs to meet certain debt-to-income (DTI) requirements. That seems simple enough. However, there was confusion regarding federal student loan debt on an income-driven repayment program. When calculating a debt burden, should the underwriter include the standard student loan payment, the reduced payment, or something in between? The new statement from Fannie Mae makes it clear: the reduced payment can be used, even when the payment is $0. According to Fannie Mae, “if the lender obtains documentation to evidence the actual monthly payment is $0, the lender may qualify the borrower with the $0 payment as long as the $0 payment is associated with an income-driven repayment plan.”

This is important, because the payment calculation for a student loan (10% of the discretionary income) is different from the DTI requirement of a mortgage. Many Americans could find it easier to qualify for a mortgage while in student loan debt. Michigan-based mortgage broker Cassandra Evers told MagnifyMoney that the changes “allow a lot more borrowers to qualify for a home.” Previously, there was a lot of confusion among borrowers, lenders, and brokers, Evers said. “[The rules have] changed at least five or six times in the last five years.”

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“You can’t jawbone the economy..”

US Auto Market Slump Persists (BBG)

Here’s a bad sign for the U.S. economy: Auto sales just fell the most since August 2010, a year after the federal government’s “Cash for Clunkers” program to stimulate demand came to an end. Sales at General Motors plunged 15% in its home market in July, the biggest drop in more than a year. Its Detroit rivals didn’t fare much better: Ford reported its biggest sales decline since October and Fiat Chrysler had its second worst tumble this year. The disappointing showing underscores how Detroit has been struggling to live up to President Donald Trump’s prediction that it would become “the car capital of the world again.” The hometown automakers are instead laying off U.S. workers, particularly those who build passenger cars that have fallen out of favor with American consumers.

A demand slump has rendered spending on vehicles and parts a drag on U.S. economic growth, after years of contributing to expansion. “You can’t jawbone the economy,” said Diane Swonk, CEO and founder of DS Economics. “The auto industry was stronger than the rest of the economy for a while because they were giving credit to people who couldn’t pay loans. Sales crested sooner and now they are paying the price.” The traditional U.S. automakers each missed projections for declines that analysts gave in a Bloomberg News survey. While Nissan and Honda both beat projections, only Toyota posted a gain. Industrywide deliveries fell 7%, the steepest drop since the anniversary of “Cash for Clunkers,” a program that inflated U.S. sales in August 2009 as buyers traded in for more fuel-efficient wheels. The annualized pace of light-vehicle sales, adjusted for seasonal trends, slowed to 16.7 million in July, according to Autodata Corp., from 17.8 million a year earlier.

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China is not liking this.

US Plans Trade Measures Against China (WSJ)

The Trump administration is planning trade measures to force Beijing to crack down on intellectual-property theft and ease requirements that American companies share advanced technologies to gain entry to the Chinese market. The administration is considering invoking a little-used provision of U.S. trade law to investigate whether China’s intellectual-property policies constitute “unfair trade practices,” according to people familiar with the matter. That would pave the way for the U.S. to impose sanctions on Chinese exporters or to further restrict the transfer of advanced technology to Chinese firms or to U.S.-China joint ventures. American business frustration with Chinese trade and market-access practices has mounted in recent years, with U.S. business groups urging the government to take a tougher trade line with China.

Many organizations have complained that the Trump administration hasn’t pushed hard enough in areas like intellectual property, as it has focused more on Chinese manufacturing and China’s $347 billion trade surplus with the U.S. last year. That discontent has intensified as China’s economy continued to expand and its computer and software sectors became bigger competitors internationally. Western firms fear China will use the regulations to bar foreign investments in areas that Beijing targets for investment, including semiconductors, advanced-machine tools and artificial intelligence. One big question hanging over the White House review is whether the administration pursues any complaint through the World Trade Organization, or whether it chooses to impose penalties on its own without first seeking permission from the international body, which some Trump advisers have argued is incapable of dealing with China’s trade practices.

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Has Trump even signed the new sanctions yet?

US Begins Russia Drawdown After Kremlin Retaliates For Sanctions (R.)

The United States began removing furniture and equipment from a diplomatic property in Moscow on Tuesday in the first sign of compliance with a Kremlin order to slash its presence in Russia as retaliation for new U.S. sanctions. President Vladimir Putin has ordered the United States to cut around 60% of its diplomatic staff in Russia by Sept. 1, and said Moscow will seize two U.S. diplomatic properties in response to sanctions approved by Congress last week. The White House has said U.S. President Donald Trump will sign the sanctions bill, meant as a response to alleged Russian meddling in the 2016 U.S. presidential election and to further punish Moscow for its 2014 annexation of Crimea from Ukraine.

On Tuesday, removal men began dismantling play equipment and barbecues at a U.S.-owned dacha (country villa) on the outskirts of Moscow, after being refused access the day before, according to a Reuters journalist at the scene. The dacha, which is being confiscated along with a U.S. warehouse in the south of the Russian capital, was used by U.S. diplomatic staff at the weekends and to host parties for students, journalists and other diplomats. [..] The ultimatum issued by the Russian leader is a display to voters at home that he is prepared to stand up to Washington – but is also carefully calibrated to avoid directly affecting the U.S. investment he needs, or burning his bridges with Trump. One person at the embassy, who spoke on condition of anonymity because they are not authorized to talk to the media, said staff there were feeling depressed and despondent as they came to terms with the Kremlin’s order. “The mood in the office is very pessimistic,” the person said. “Everyone is just loitering, or sitting on job websites looking for a new job.”

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Strange things were taking place.

Former Obama Aide Rhodes A Person Of Interest In Unmasking Investigation (C.)

Former Obama White House National Security Adviser Ben Rhodes is now an emerging as a person of interest in the House Intelligence Committee’s unmasking investigation, according to a letter sent Tuesday by the committee to the National Security Agency (NSA). This adds Rhodes to the growing list of top Obama government officials who may have improperly unmasked Americans in communications intercepted overseas by the NSA, Circa has confirmed. The House Intelligence Committee Chairman Devin Nunes, R-CA, sent the letter to the National Security Agency requesting the number of unmaskings made by Rhodes from Jan. 1, 2016 to Jan. 20, 2017, according to congressional sources who spoke with Circa.

Rhodes, who worked closely with former National Security Adviser Susan Rice and was a former deputy national security adviser for strategic communications for President Obama, became a focus of the committee during its review of classified information to assess whether laws were broken regarding NSA intercepted communications of President Trump, members of his administration and other Americans before and after the election, according to congressional officials. The committee is requesting that the NSA deliver the information on Rhodes by August, 21. Former U.S. Ambassador to the United Nations Samantha Power, Rice and former CIA Director John Brennan have all been named in the House Intelligence Committee’s investigation into the unmasking of Americans.

A letter sent last week from Nunes to Dan Coats, the director of National Intelligence, suggested that top Obama aides made hundreds of unmasking requests during the 2016 presidential elections. The story, which was first reported by The Hill last week, stated that the requests were made without specific justifications as to why the unmasking was necessary. Rice and Brennan have confirmed they sought the unredacted names of Americans in NSA-sourced intelligence reports but insisted their requests were routine parts of their work and had no nefarious intentions. Power also has legal authority to unmask officials, though the practice has not reportedly been common for someone in her position. Rhodes also had legal authority to unmask Americans in NSA-source intelligence reports. But intelligence and congressional sources question the extent of the unmasking.

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Testament to insanity and waste.

For Sale: Two Half-Finished Nuclear Reactors -Never Used- (BBG)

Looking to buy two half-finished nuclear reactors? It may be your lucky day. U.S. utility owner Scana Corp. dropped a plan to build two reactors at the V.C. Summer power plant in South Carolina on Monday after the projected total costs exceeded $20 billion. The cancelation of the project is another blow to the much-hyped (and thus far non-existent) nuclear renaissance in the U.S. As cheap natural gas squeezes the margins of nuclear generators, there’s only one company currently building reactors in the country — Southern Co., at its Vogtle plant in Georgia. So what’s a utility to do with two unfinished nukes laying around in South Carolina? Scana CEO Kevin Marsh said in a call with analysts that he wants to keep the equipment in operating condition in case someone in China, India or the U.K. wants to buy it.

A sale like that is easier said than done. “The Chinese are developing a competitive product, the Brits are in trouble with their nuclear projects and the Indians want to develop their own supply chain,” said Chris Gadomski, a nuclear industry analyst for Bloomberg New Energy Finance. It’s more likely the South Carolina project is “mothballed,” he said. Reactors have found new buyers and new life in the past. In 2016, the Tennessee Valley Authority turned on its Watts Bar 2 reactor after work had been suspended in 1985. Franklin L. Haney bought an unfinished, decades-old nuclear plant in northern Alabama at an auction last November for $111 million. The Bellefonte plant came with two partially built nuclear reactors, one that’s about 55% complete and another about 35% finished.

Haney still has to get the mothballed station into working order, find customers for its power and qualify for a federal nuclear production tax credit. Perhaps a similar fate awaits the V.C. Summer plant. “It makes more sense to let them sit in place, maintain them, and see if they can be revisited,” Gadomski said.

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What, there are still unions?

Nissan Runs One Of ‘Nastiest Anti-Union Campaigns’ In Modern US History (G.)

Days before a potentially historic union vote at the Nissan plant in Canton, Mississippi, the car company has been accused of running one of the “nastiest anti-union campaigns in the modern history of the American labour movement”. The vote, a fiercely contested effort by the United Auto Workers (UAW) union to represent a foreign automaker’s US plant, is planned for Thursday and Friday this week. It comes as US unions are hopeful they can overturn a series of defeats as they seek to build membership in southern states, where manufacturers have moved to take advantage of lower wages and non-union workforces. In the closing days of the campaign, which has attracted support from the former presidential hopeful Bernie Sanders, UAW officials and their allies have become increasingly confident of victory even as managers have pressured workers to vote no.

“People are rallying,” says Frank Figgers, co-chair of the Mississippi Alliance for Fairness at Nissan. The UAW is undertaking an extensive door-to-door campaign to visit workers in their homes to discuss the union. The UAW has shipped in staff from all over the country to help in the effort. Other unions from around the south have shipped in organizers from across the country to assist in the outreach to the plant’s nearly 4,000 workers. Nissan has responded with fierce opposition. The company has blitzed local TV with anti-union ads and stands accused of both threatening and bribing workers to vote no. It requires workers to regularly attend anti-union roundtable group meetings as well as one-on-one meetings with their direct supervisors, some of whom have worn “vote no” T-shirts to work. The Republican governor, Phil Bryant, has also come out hard for Nissan. “If you want to take away your job, if you want to end manufacturing as we know it in Mississippi, just start expanding unions,” Bryant said last week.

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Evil incorporated.

Monsanto’s Sway Over Research Is Seen in Disclosed Emails (NYT)

Documents released Tuesday in a lawsuit against Monsanto raised new questions about the company’s efforts to influence the news media and scientific research and revealed internal debate over the safety of its highest-profile product, the weed killer Roundup. The active ingredient in Roundup, glyphosate, is the most common weed killer in the world and is used by farmers on row crops and by home gardeners. While Roundup’s relative safety has been upheld by most regulators, a case in federal court in San Francisco continues to raise questions about the company’s practices and the product itself. The documents underscore the lengths to which the agrochemical company goes to protect its image. Documents show that Henry I. Miller, an academic and a vocal proponent of genetically modified crops, asked Monsanto to draft an article for him that largely mirrored one that appeared under his name on Forbes’s website in 2015.

A similar issue appeared in academic research. An academic involved in writing research funded by Monsanto, John Acquavella, a former Monsanto employee, appeared to express discomfort with the process, writing in a 2015 email to a Monsanto executive, “I can’t be part of deceptive authorship on a presentation or publication.” He also said of the way the company was trying to present the authorship: “We call that ghost writing and it is unethical.” A Monsanto official said the comments were the result of “a complete misunderstanding” that had been “worked out,” while Mr. Acquavella said in an email on Tuesday that “there was no ghostwriting” and that his comments had been related to an early draft and a question over authorship that was resolved. The documents also show internal talk about Roundup’s safety.

“If somebody came to me and said they wanted to test Roundup I know how I would react — with serious concern,” one Monsanto scientist wrote in an internal email in 2001. Monsanto said it was outraged by the documents’ release by a law firm involved in the litigation. “There is a standing confidentiality order that they violated,” said Scott Partridge, vice president of global strategy for Monsanto. He said that while “you can’t unring a bell,” Monsanto would seek penalties on the firm. “What you’re seeing are some cherry-picked things that can be made to look bad,” Mr. Partridge said. “But the substance and the science are not affected by this.”

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How does a farmer protect himself from Monsanto, DuPont and BASF?

Pesticide ‘Drifting’ Wreaks Havoc Across US Crops (BBG)

Larry Martin in Illinois says he’s never seen anything like it in his 35 years of farming. Arkansas soybean grower Joe McLemore says he faces the loss of his life savings. They’re among farmers across the U.S. suffering from a pesticide “drifting” across from neighboring fields onto their crops, leaving behind a trail of damage. Although not a new problem, it’s re-emerged with a vengeance this year. At least 2.5 million acres (1 million hectares) have been damaged in this growing season through mid-July, according to estimates from Kevin Bradley, a professor of plant sciences at the University of Missouri. Dicamba, the offending herbicide, is produced by seed and crop-chemical giants Monsanto, DuPont and BASF.

It’s been around for decades, but in recent years it gained a new lease of life after the companies developed new dicamba-resistant soybean and cotton seeds, allowing farmers to spray crops later in the growing process. Dicamba is fine if you’re growing those genetically modified varieties, but not if you’re cultivating others and the chemical wafts over from another farm. The situation is so bad that states including Missouri, Arkansas, and Tennessee have placed restrictions on dicamba use at various times during the summer. Martin, a third-generation farmer, says an 80-acre soybean field of his has been damaged by dicamba. McLemore, who started out on his own eight years ago, after two decades working on someone else’s farm, says 800 of his 1,026 acres of soybeans have suffered damage.

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3%? That’s hardly ‘bouncing back’.

Bees Are Bouncing Back From Colony Collapse Disorder – A Little (BBG)

The number of U.S. honeybees, a critical component in the agriculture industry, rose in 2017 from a year earlier, and deaths of the insects attributed to a mysterious malady that’s affected hives in North America and Europe declined, according a U.S. Department of Agriculture honeybee health survey released Tuesday. The number of commercial U.S. honeybee colonies rose 3% to 2.89 million as of April 1, 2017 compared with a year earlier, the Agriculture Department reported. The number of hives lost to Colony Collapse Disorder, a phenomenon of disappearing bees that has raised concerns among farmers and scientists for a decade, was 84,430 in this year’s first quarter, down 27% from a year earlier. Year-over-year losses declined by the same%age in April through June, the most recent data in the survey.

Still, more than two-fifths of beekeepers said mites were harming their hives, and with pesticides and other factors still stressing bees, the overall increase is largely the result of constant replenishment of losses, the study showed. “You create new hives by breaking up your stronger hives, which just makes them weaker,” said Tim May, a beekeeper in Harvard, Illinois and the vice-president of the American Beekeeping Federation based in Atlanta. “We check for mites, we keep our bees well-fed, we communicate with farmers so they don’t spray pesticides when our hives are vulnerable. I don’t know what else we can do.” Environmental groups have expressed alarm over the 90% decline during the past two decades in the population of pollinators, from wild bees to Monarch butterflies. Some point to a class of pesticides called neonicotinoids as a possible cause, a link rejected by Bayer AG and other manufacturers.

In the USDA study, beekeepers who owned at least five colonies, or hives, reported the most losses from the varroa mite, a parasite that lives only in beehives and survives by sucking insect blood. The scourge, present in the U.S. since 1987, was reported in 42% of commercial hives between April and June this year, according to the USDA. That’s down from 53% in the same period one year earlier. Among other factors, beekeepers said 13% of colonies in the second quarter of this year were stressed by pesticides, 12% by mites and pests other than varroa and 4.3 by diseases. Bad weather, starvation, insufficient forage and other reasons were listed as problems with 6.6% of hives.

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What does it mean to be human?

8 Migrants Dead Off Libya, 500 Rescued As Italy Prepares Naval Mission (AFP)

The bodies of eight migrants have been found at sea off the coast of Libya by rescuers coming to the aid of four rubber dinghies, the Italian coast guard said Tuesday. Some 500 survivors were pulled to safety, the coast guard told AFP, illustrating the huge challenge that continues to bedevil authorities as people try to reach Europe. The latest deaths came as the Italian government presented plans for a naval mission in Libyan territorial waters that aims to reduce the flow of migrants from the coast. Spanish NGO Proactiva Open Arms, which was taking part in the rescues, said the corpses were recovered by the Santa Lucia merchant ship.

“We are here to stop more people drowning, today eight dead and four drifting boats” in distress, Proactiva’s founder, Oscar Champs, said on Twitter. The charity said there were 79 women and 39 minors — including four young children — among those rescued. Nearly 95,000 people have been brought to safety in Italy this year, a rise of 1% on the same period last year, according to the interior ministry. The government intends to send a logistics ship that could support Libyan units and will also offer a patrol boat, Italian Defense Minister Roberta Pinotti told lawmakers on Tuesday. However, Italy has no intention to create a naval blockade, which would be a “hostile act,” she said, insisting that support for the Libyan mission was the aim and cooperation was necessary.

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If you read between the whining, what a lovely story. Night curfew because turtles are important. Perhaps that’s what it means to be human.

EasyJet Passengers Left High And Dry In Greece Due to Mating Turtles (G.)

Scores of easyJet passengers were stranded on the Greek island of Zakynthos (also known as Zante) after their plane developed technical difficulties and a replacement aircraft was prevented from flying in because of mating turtles. [..] The airline said the night curfew – apparently in place because of vulnerable loggerhead turtles breeding nearby – had prevented an alternative aircraft being sent out. The sea turtle breeding season is well under way in Zakynthos. According to Archelon, a group dedicated in protecting sea turtles in Greece, late June to early July see the highest levels of spawning. The group has recorded 500 nests on the island so far, but that is fewer than in previous years.

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Jul 122015
 


DPC Up Sutter Street from Grant Avenue, San Francisco 1906

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

China private debt is staggering.

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

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

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

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

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

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

Greece Crisis: Europe Turns The Screw (Paul Mason)

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

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

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

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Got to stretch it out for dramatic effect.

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

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

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

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Only some of the parties seem to want one.

Greek Bailout Deal Remains Elusive (WSJ)

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

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

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

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

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

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

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

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

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No kidding.

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

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

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

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

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

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

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Holland in the role of Connecticut.

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

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

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

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

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

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

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

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

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

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

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

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Her legacy is shot.

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

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

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

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

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

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Tantalus!

The Eurogroup Gets Mythological on Greece (Lucey)

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

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

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

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

A Union of Deflation and Unemployment (Andricopoulos)

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

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

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

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

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

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

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

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

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

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

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

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

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Taking Syriza apart?

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

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

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

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

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

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

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

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

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

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In the US.

A Coming Era Of Civil Disobedience? (Buchanan)

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

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

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

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

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May 272015
 
 May 27, 2015  Posted by at 11:38 pm Finance Tagged with: , , , , , , , , ,  4 Responses »


Dorothea Lange Salvation Army, San Francisco, California. Unemployed young men 1939

There are many things going on in the Greece vs Institutions+Germany negotiations, and many more on the fringe of the talks, with opinions being vented left and right, not least of all in the media, often driven more by a particular agenda than by facts or know-how.

What most fail to acknowledge is to what extent the position of the creditor institutions is powered by economic religion, and that is a shame, because it makes it very difficult for the average reader and viewer to understand what happens, and why.

Greek FinMin Yanis Varoufakis has often complained that he can’t get the finance ministers and others to discuss economics. As our mutual friend Steve Keen put it:

Steve Keen said the finance minister was frustrated with the progress of Greece’s talks with the euro zone, adding Varoufakis had compared the talks to dealing with “divorce lawyers”. Keen said the finance ministers of Europe refused to discuss certain euro policies, according to Varoufakis. [..] When asked what [Varoufakis and he] mainly discuss at the moment, Keen said, “Mainly his frustration, the fact that the one thing that he can’t discuss with the finance ministers of Europe is economics..”

“He goes inside, he is expected to be discussing what the economic impact of the policies of the euro are and how to get a better set of policies, living within the confines of the euro and the entire European Union system, and he said they simply won’t discuss it. He said it is like walking into a bunch of divorce lawyers, it is not anything like what you think finance ministers should be talking about..”

They won’t discuss these things because they have found religion, in the sense that there is for them only one truth, to the exclusion of all others. They toe the preconceived line, because if they didn’t they would lose their positions.

They are undoubtedly also very hesitant to discuss economics with Varoufakis because they are aware of his prowess in the field. They are much less knowledgeable, which makes it tempting to hide behind numbers, behind Germany, and behind their faith that their views are the only right ones. Which is precisely what Varoufakis challenges.

You won’t see the Pope in a muslim prayer five times daily with his face to Mecca, or an imam celebrating Holy Mass. And that’s sort of alright, there’s nothing that says everyone should have the same religion. But when it comes to a field such as economics, and certainly when multi-trillion dollar decisions are being taken, and people in the streets are already going broke and hungry, that is definitely not alright.

The number one priority under such circumstances absolutely must be to find a solution, find it fast, and alleviate the suffering. Not to push through any particular policy or vision. Now, you can accuse Greece of not doing that, and the institutions and their pundits in the press do that on a 24/7 basis, but that view lacks substance.

The institutions demand more austerity measures for Greece, whereas it’s plain to see that austerity is what has led to the misery of the people. In particular, pensions cuts are apparently still a point neither side wants to give in on. But not only have Greek pensions already been cut by 40% or so, they are the last straw for many entire families.

Which means the entire pension system would need to be thoroughly reformed, not just pensions cut, or more, and more widespread, misery is in the offing. And there simply is no time to achieve that thorough reform before Greek repayment deadlines set in. Don’t forget, the entire Syriza government hasn’t been able (allowed) to do anything but negotiate. And is then accused of not doing enough.

This inflexible insistence on more austerity, and hence more misery, for the Greek people, is a good example of how religion driven the IMF, EU and ECB are. As I’ve written many times, it’s about power, not about money; it wouldn’t cost all that much, but could achieve a lot, to let Greeks off the austerity hook for a bit. All it takes is flexibility when entering the negotiations. But there ain’t much of that, if any, on the creditors’ side.

Which is why this Bloomberg piece on the IMF’s ‘enforcer’ for Greece Poul Thomsen should bring a smile to our faces.

A former IMF colleague of Thomsen’s, Ashoka Mody, last month in a Bloomberg View column called for the fund to “recognize its responsibility for the country’s predicament” and forgive much of Greece’s debt. There’s little sign that the IMF and Thomsen might bend the rules or cross their red lines now. While some issues such as short-term budget targets may be negotiable, the fund’s position is that any Greek agreement must bring debt down to sustainable levels and include concrete commitment to reforms, especially cuts to public pensions.

“We are open to new ideas and different ways to achieve a country’s economic goals. We are a pragmatic institution,” Thomsen said in a statement to Bloomberg News. “But we also need to be mindful of economic realities. At the end of the day it needs to add up. And we need to ensure that we treat our member states equally, that we apply our rules uniformly.”

For all we know that’s even the way he sees things. But the IMF is neither a flexible nor a beneficial institution. It’s a power tool for the wealthy. The philosophy behind the institutions’ view of the negotiations, and indeed their entire view of economics in general, is constructed to follow the preferences of the wealthy, who have a strong vested interest in centralized control over just about everything, because more centralization makes it easier for them to exert this control.

Syriza getting its way on reforms doesn’t fit in that picture; before you know more parties want some say in their futures too. Most of all, though, different ideas on economics in general cannot be accepted. Everybody has to follow the IMF line of ‘reforms’, asset sales, privatizations, labor protection and austerity. Certainly everyone who owes the Fund money. That’s its ultimate power tool.

That the EU follows that line merely means it’s and immoral and amoral institution, and a union only in name. The ECB follows the IMF line on economics, which means there’s no room for aberrant views, no matter how well founded and thought through. There’s no place in there for people like Varoufakis, or Steve Keen.

It’s not about knowledge or brilliance, it’s about keeping the faith, because that keeps the power where it’s at. Yeah, there’s a hint of Galileo in there somewhere. The ‘philosophy’ is neo-liberal mixed with let’s say, Keynes-for-the-rich, aka QE.

A nice example of how the IMF operates, and how far its power tentacles reach, came in a Guardian piece on Chapter 11 bankruptcy for countries, and why Argentina took its case to the UN, not the IMF:

When Argentina tabled a motion calling for the UN to examine the issue of sovereign debt restructuring last autumn, 124 countries voted for it; 11, including the UK and the US, with their powerful financial lobbies, voted against; and there were 41 abstentions. Llorenti, who is chairing the UN “ad hoc committee” set up as a result of that vote, says the 11 countries that objected hold 45% of the voting power at the IMF. He believes they would prefer the matter to be tackled there, where they can shape the arguments: “It’s a matter of control, really.”

Another thing I‘ve said before is that the IMF is a prime example of why we should steer away from supra-national organizations. We can’t make them run for our own benefit, they invariably end up being run for the benefit of the few, because their inherent lack of transparency and democracy makes them an irresistible target for sociopathic individuals, who seek control, not democracy, and for the elites whose interests they invariably end up representing.

There’s the World Bank, NATO, the IMF, the EU. The UN is somewhat more democratic, but only somewhat. Behind the veil it’s not at all.

Amongst the European finance minsters there should still be a few who may have doubts about what’s happening to Greece, what’s being demanded of it. And who realize that the purely political decision to bail out the banks that had lent to Greece, and shove their debts into the lap of all Europeans, who in turn pushed it right back into Greece’s lap, is at best highly questionable.

If these Europeans want to save their union, they need to be told that what they’re doing right now is the exact wrong way to go about that, 180º wrong. What happens today is not holding or pulling the member states together, it’s driving them apart.

Perhaps it is indeed ultimately a choice between the banks and the people. And perhaps it scares them stiff not to choose the banks. With their limited knowledge of how economies function, they must believe the story of how everything will fall to pieces if the banks fail. Besides, if they question it, they’re out.

But economics cannot be a religion, it cannot have this inflexibility and resistance to change. And neither can politics, not if we want our unions, our countries and our societies to survive, if we want to survive, and our children. Economics is not a science, though it very much longs for that status. It shouldn’t be a religion either, however.

There is nothing that says, or proves, that bailing out banks and forcing austerity on people (note the combination) is the best, or only, way to rescue an economy in trouble. That austerity is the way to rebuild an economy. These are mere ideas, conceived by people who studied textbooks.

What Greece is asking for is a simple bottom beneath its society, lest it completely falls to bits, lest all it’s left with is some right wing movement or another. But instead, the institutions’ approach to economics, to democracy and to power look to make a true solution for the Greek problem impossible.

That in turn would seem to make a Grexit, in some shape or another, the only way left to go. Why would anyone want to live in a world dominated by religious fanatics and their henchmen?

Finally, as for what the euro, and hence the eurozone, were intended to do, here’s Greg Palast from 2012, talking about father of the euro, Robert Mundell:

Robert Mundell, Evil Genius Of The Euro

“It’s very hard to fire workers in Europe,” he complained. His answer: the euro. The euro would really do its work when crises hit, Mundell explained. Removing a government’s control over currency would prevent nasty little elected officials from using Keynesian monetary and fiscal juice to pull a nation out of recession.

“It puts monetary policy out of the reach of politicians,” he said. “[And] without fiscal policy, the only way nations can keep jobs is by the competitive reduction of rules on business.” He cited labor laws, environmental regulations and, of course, taxes. All would be flushed away by the euro. Democracy would not be allowed to interfere with the marketplace – or the plumbing. [..]

The supply-side economics pioneered by Mundell became the theoretical template for Reaganomics – or as George Bush the Elder called it, “voodoo economics”: the magical belief in free-market nostrums that also inspired the policies of Mrs Thatcher.

Mundell explained to me that, in fact, the euro is of a piece with Reaganomics: “Monetary discipline forces fiscal discipline on the politicians as well.” And when crises arise, economically disarmed nations have little to do but wipe away government regulations wholesale, privatize state industries en masse, slash taxes and send the European welfare state down the drain.

May 242015
 
 May 24, 2015  Posted by at 11:12 am Finance Tagged with: , , , , , , , , ,  3 Responses »


Harris&Ewing F.W. Grand store, Washington, DC 1925

Mario Draghi made another huge faux pas Thursday, but it looks like the entire world press has become immune to them, because it happens all the time, because they don’t realize what it means, and because they have a message if not a mission to sell. But still, none of these things makes it alright. Nor does Draghi’s denying it was a faux pas to begin with.

And while that’s very worrisome, ‘the public’ appear to be as numbed and dumbed down to this as the media themselves are -largely due to ’cause and effect’, no doubt-. We saw an account of a North Korean defector yesterday lamenting that her country doesn’t have a functioning press, and we thought: get in line.

It’s one thing for the Bank of England to research the effects of a Brexit. It’s even inevitable that a central bank should do this, but both the process and the outcome would always have to remain under wraps. Why it was ‘accidentally’ emailed to the Guardian is hard to gauge, but it’s not a big news event that such a study takes place. The contents may yet turn out to be, but that doesn’t look all that likely.

The reason the study should remain secret is, of course, that a Brexit is a political decision, and a country’s central bank can not be party to such decisions.

It’s therefore quite another thing for ECB head Mario Draghi to speak in public about reforms inside the eurozone. Draghi can perhaps vent his opinion behind closed doors, for instance in talks with politicians in European nations, but any and all eurozone reforms remain exclusively political decisions, even if they are economic reforms, and therefore Draghi must stay away from the topic, certainly in public. Far away.

There has to be a very clear line between central banks and governments. The latter should never be able to influence the former, because it would risk making economic policy serve only short term interests (until the next election). Likewise the former should stay out of the latter’s decisions, because that would tend to make political processes skewed disproportionally towards finance and the economy, at the potential cost of other interests in a society.

This may sound idealistic and out of sync with the present day reality, but if it does, that does not bode well. It’s dangerous to play fast and loose with the founding principles of individual countries, and perhaps even more with those of unions of sovereign nations.

Obviously, in the same vein it’s fully out of line for German FinMin Schäuble to express his opinion on whether or not Greece should hold a referendum on euro membership, or any referendum for that matter. Ye olde Wolfgang is tasked with Germany’s financial politics, not Greece’s, and being a minister for one of 28 EU members doesn’t give him the liberty to express such opinions. Because all EU nations are sovereign nations, and no foreign politicians have any say in other nations’ domestic politics.

It really is that simple, no matter how much of this brinkmanship has already passed under the bridge. Even Angela Merkel, though she’s Germany’s political leader, must refrain from comments on internal Greek political affairs. She must also, if members of her cabinet make comments like Schäuble’s, tell them to never do that again, or else. It’s simply the way the EU was constructed. There is no grey area there.

The way the eurozone is treating Greece has already shown that it’s highly improbable the union can and will last forever. Too many -sovereign- boundaries have been crossed. Draghi’s and Schäuble’s comments will speed up the process of disintegration. They will achieve the exact opposite of what they try to accomplish. The European Union will show itself to be a union of fairweather friends. In Greece, this is already being revealed.

The eurozone, or European monetary union, has now had as many years of economic turmoil as it’s had years of prosperity. And it’ll be all downhill from here on in, precisely because certain people think they can afford to meddle in the affairs of sovereign nations. The euro was launched on January 2002, and was in trouble as soon as the US was, even if this was not acknowledged right away. Since 2008, Europe has swung from crisis to crisis, and there’s no end in sight.

At the central bankers’ undoubtedly ultra luxurious love fest in Sintra, Portugal, where all protagonists largely agree with one another, Draghi on Friday held a speech. And right from the start, he started pushing reforms, and showing why he really shouldn’t. Because what he suggests is not politically -or economically- neutral, it’s driven by ideology.

He can’t claim that it’s all just economics. When you talk about opening markets, facilitating reallocation etc., you’re expressing a political opinion about how a society can and should be structured, not merely an economy.

Structural Reforms, Inflation And Monetary Policy (Mario Draghi)

Our strong focus on structural reforms is not because they have been ignored in recent years. On the contrary, a great deal has been achieved and we have praised progress where it has taken place, including here in Portugal. Rather, if we talk often about structural reforms it is because we know that our ability to bring about a lasting return of stability and prosperity does not rely only on cyclical policies – including monetary policy – but also on structural policies. The two are heavily interdependent.

So what I would like to do today in opening our annual discussions in Sintra is, first, to explain what we mean by structural reforms and why the central bank has a pressing and legitimate interest in their implementation. And second, to underline why being in the early phases of a cyclical recovery is not a reason to postpone structural reforms; it is in fact an opportunity to accelerate them.

Structural reforms are, in my view, best defined as policies that permanently and positively alter the supply-side of the economy. This means that they have two key effects. First, they lift the path of potential output, either by raising the inputs to production – the supply and quality of labour and the amount of capital per worker – or by ensuring that those inputs are used more efficiently, i.e. by raising total factor productivity (TFP).

And second, they make economies more resilient to economic shocks by facilitating price and wage flexibility and the swift reallocation of resources within and across sectors. These two effects are complementary. An economy that rebounds faster after a shock is an economy that grows more over time, as it suffers from lower hysteresis effects. And the same structural reforms will often increase both short-term flexibility and long-term growth.

And earlier in the -long- speech he said: “Our strong focus on structural reforms is not because they have been ignored in recent years. On the contrary, a great deal has been achieved and we have praised progress where it has taken place, including here in Portugal.

So Draghi states that reforms have already been successful. Wherever things seem to go right, he will claim that’s due to ‘his’ reforms. Wherever they don’t, that’s due to not enough reforms. His is a goalseeked view of the world.

He claims that the structural reforms he advocates will lead to more resilience and growth. But since these reforms are for the most part a simple rehash of longer running centralization efforts, we need only look at the latter’s effects on society to gauge the potential consequences of what Draghi suggests. And what we then find is that the entire package has led to growth almost exclusively for large corporations and financial institutions. And even that growth is now elusive.

Neither reforms nor stimulus have done much, if anything, to alleviate the misery in Greece or Spain or Italy, and Portugal is not doing much better, as the rise of the Socialist Party makes clear. The reforms that Draghi touts for Lisbon consist mainly of cuts to wages and pensions. How that is progress, or how it has made the Portuguese economy ‘more resilient’, is anybody’s guess.

Resilience cannot mean that a system makes it easier to force you to leave your home to find work, but that is exactly what Draghi advocates. Instead, resilience must mean that it is easier for you to find properly rewarded work right where you are, preferably producing your own society’s basic necessities. That is what would make your society more capable of withstanding economic shocks.

Still, it’s the direct opposite of what Draghi has in mind. Draghi states that [structural reforms] “.. make economies more resilient to economic shocks by facilitating price and wage flexibility and the swift reallocation of resources within and across sectors.”

That obviously and simply means that, if it pleases the economic elites who own a society’s assets, your wages can more easily be lowered, prices for basic necessities can be raised, and you yourself can be ‘swiftly reallocated’ far from where you live, and into industries you may not want to work in that don’t do anything to lift your society.

Whether such kinds of changes to your society’s framework are desirable is manifestly a political theme, and an ideological one. They may make it easier for corporations to raise their bottom line, but they come at a substantial cost for everyone else.

Draghi tries to push a neoliberal agenda even further, and that’s a decidedly political agenda, not an economic one.

There was a panel discussion on Saturday in which Draghi defended his forays into politics, and he was called on them:

Draghi and Fischer Reject Claim Central Banks Are Too Politicised

The ECB president on Saturday said his calls were appropriate in a monetary union where growth prospects had been badly damaged by governments’ resistance to economic reforms. Mr Draghi said it was the central bank’s responsibility to comment if governments’ inaction on structural reforms was creating divergence in growth and unemployment within the eurozone, which undermined the existence of the currency area. “In a monetary union you can’t afford to have large and increasing structural divergences,” the ECB president said. “They tend to become explosive.”

He even claims it’s his responsibility to make political remarks….

Mr Draghi’s defence of the central bank came after Paul De Grauwe, an academic at the London School of Economics, challenged his calls for structural reforms earlier in the week. Mr De Grauwe said central banks’ push for governments to take steps that removed people’s job protection would expose monetary policy makers to criticism over their independence to set interest rates.

The ECB president [..] said central banks had been wrong to keep quiet on the deregulation of the financial sector. “We all wish central bankers had spoken out more when regulation was dismantled before the crisis,” Mr Draghi said. A lack of structural reform was having much more of an impact on poor European growth than in the US, he added.

De Grauwe is half right in his criticism, but only half. It’s not just about the independence to set interest rates, it’s about independence, period. A central bank cannot promote a political ideology disguised as economic measures. It’s bad enough if political parties do this, or corporations, but for central banks it’s an absolute no-go area.

Pressure towards a closer economic and monetary union in Europe is doomed to fail because it cannot be done without a closer political union at the same time. They’re all the same thing. They’re all about giving up sovereignty, about giving away the power to decide about your own country, society, economy, your own life. And Greeks don’t want the same things as Germans, nor do Italians want to become Dutch.

Because of Greece, many EU nations are now increasingly waking up to what a ‘close monetary union’ would mean, namely that Germany would be increasingly calling the shots all over Europe. No matter how many technocrats Brussels manages to sneak into member countries, there’s no way all of them would agree, and it would have to be a unanimous decision.

Draghi’s remarks therefore precipitate the disintegration of Europe, and it would be good if more people would recognize and acknowledge that. Europe are a bunch of fairweather friends, and if everyone is not very careful, they’re not going to part ways in a peaceful manner. The danger that this would lead to the exact opposite of what the EU was meant to achieve, is clear and present.

Apr 282015
 
 April 28, 2015  Posted by at 5:03 am Finance Tagged with: , , , , , ,  5 Responses »


Harris&Ewing Ford Motor Co. New medical center parking garage, Washington, DC 1938

Dutch daily Algemeen Dagblad ran a little article recently that we’re surprised no other news organization picked up. It concerned a proposal in the European Parliament in which the parliamentarians got to vote on raising their own paycheck (always a good idea). The best thing about the story is that not everyone voted in favor.

Most did though. It much amused me to see that apparently it was Angela Merkel’s party, the German Christian Democrats, which was behind the proposal. Initially, they had even wanted double what they actually got. Here’s some numbers and details – and please forgive me for not being a math wizard -.

A Member of the European Parliament (MEP), according to the article, receives the following for their valiant and entirely selfless efforts at public service:

• Salary: €8000+
• Expenses: €4300
• A per diem allowance of €300 for every day a meeting is attended.

Per year that adds up to: €147.600 + €30,000 if 100 meetings are attended. Let’s say €180,000.

On top of that, the Parliament pays into MEPs pension funds, but we’ll leave that alone for now.

There are 751 MEPs, so total ‘salary’ costs are €135,180,000. But that’s just the start.

And we’re not yet adding translation costs, which apparently can add up to over €120,000 per day (!), or perhaps some €30-40 million per year.

Nor are we taking into account the estimated at least €200 million per year it takes to have the entire Parliament (MEPs, assistants, translators, employees, in total about 4000 people) move between Brussels and Strasbourg every month, an oddity that springs from a drawn-out power poker play between Germany and France. Do note: the constant move costs way more than all 751 MEP’s base salary + expenses.

No, the proposal discussed, concerns the added expense accounts MEPs receive for their assistants. At present, the amount involved is over €21,000 per month, and according to the people who receive it – and vote on raising it -, that’s not enough.

Typically, says the Dutch paper, an MEP has 3 assistants, all of whom get paid €2500 a month. They’re also in a special low Brussels income tax bracket. This means each MEP receives €252.000 per year in ‘assistant costs’, and spends €90,000 in salary costs, leaving €162,000 for food and lodging. Since there are 751 MEPs, the total adds up to €15,771,000 per month or €189,252,000 per year.

And they want more.

The original proposal called for another €3000 per month. Because some MEPs protested against this, it was reduced to €1500. Or €18,000 per year per MEP, times 751, a cool €13,518,000. Just in extra costs they voted in all by themselves.

There are many many stories about people living the high life once they get voted into the Brussels/Strasbourg traveling circus. The majority have lucrative jobs at home. They stay in swanky hotels. They collect per diems for meetings they don’t actually attend. They lay the basis for lucrative corporate careers after they exit the Parliament. It’s democracy in theory but not in practice.

Brussels/Strasbourg is no stranger to corruption, or whatever word you would want to to use to describe what goes on. Still, there are lots of MEPs who are completely on the up and up, and many who even pay back a lot of their ‘compensation’ into either the Parliament itself or into their own – national – part coffers, because they say the payments are exorbitant. But they don’t speak up. At least not outside of the confines of the Parliament itself.

But these are also – all of them put together – the people who uphold the EU policies versus Greece, where there are really many children who are hungry, and seniors who can’t get proper health care. Faced with a situation like that, one would think a proper parliament of a proper union wouldn’t dare raise its own expenses – which have to be paid by member countries’ taxpayers – before and until all children in the union are properly fed, and all grandmas properly taken care off by qualified medical personnel.

One would think. These are also the people responsible for the EU support that allows the Kiev army’s mass killings of its own people. And for the continuation of the anti-Russia and anti-Putin stance that’s become so popular across the western world. They may not be the daily executives of the circus, but they still are the responsible at the end of the day.

They are also the people who voted to cut down the budget for the Mediterranean refugee patrol missions, money saved that, if you want to take a cynical enough view, was freed to raise their own stipends. As thousands drown.

And so again we would like to raise that question: why would anyone, any country, want to have these people take their decisions for them? What would make you think when you live in Greece that these traveling circus clowns would be better at protecting and defending your interests than your own people, who live where you live, who see what you see on a daily basis?

It’s fine, and it’s perhaps even logical, at first glance, for Greeks and Italians to want to remain part of the euro. But when you look closer, you can’t avoid the notion that by being part of the euro, you give up the autonomy you also crave. And that the price you pay for being a part of the euro, and of the EU, makes you a serf to greater and richer interests that care about you about as much as they care about flies on their walls.

This one story about what MEPs vote themselves is but one example. Why not send us an example of where and how you feel Brussels protects your interests better than your own governments? We’re really curious to know. Because we don’t see it.

Feb 102015
 
 February 10, 2015  Posted by at 11:06 pm Finance Tagged with: , , , , , , ,  17 Responses »


Dorothea Lange American River camp, Sacramento, CA. Destitute family. 1936

I don’t know about you, but I’m having a ball reading up on the preparations for the Wednesday/Thursday talks between Greece and .. well, everybody else. German FinMin Schäuble proudly declares that it’s do what I tell you or you’re finished, Greek FinMin Varoufakis says prepare for a clash. Greek advisors Lazard say a $100 billion debt reduction sounds reasonable, and some anonymous EU official says Lazard are incompetent and counterproductive (not smart, that).

When will the Brussels luxury cubicles understand that the Greek people have voted down their approach fair and square? That they voted down the government that made deals with the Troika for the very and explicit reason that they made those deals in the first place, and that telling the newly elected government to stick by those deals regardless is a corruption of democracy? So far, all the EU has (anyone notice how silent the IMF has been?) is hubris, bluster and chest-thumping.

They play politicians, but Syriza plays real life. Tsipras and Varoufakis stand up for real people, while Schäuble and Dijsselbloem and their ilk stand up only for themselves. And then pretend, in front of their bathroom mirrors and the news cameras, that they protect their own people against the greedy Greeks. As for the 50%+ of young Greeks who have no future, or the countless elderly who go without basic health care, too bad and boo hoo hoo.

The European Union is no Salvation Army, after all. In Europe, everybody takes care of their own, not the others. It’s a union in name only. That’s why Germany, France, Holland bailed out their own banks after these lost big on wagers in Athens, and want the Greek people to pay for those bailouts – at least the union was good for that -.

Claiming the Greeks all borrowed so much and lived it up way beyond their stature, while in reality people are dying who could be saved with simple treatments still easily available in Berlin, Paris and Amsterdam. Greece, make no mistake, has become the third world, whether your atlas confirms it or not.

Their MO is that banks are more important than people, Germany is more important than Greece, and the Greek people are less important than the great EU project that – and they actually still believe this- will make everybody richer. Only, to Tsipras the Greek people are more important. And so the new Greek leader’s partners in the European Union threaten to make things even worse than they already are.

It’s not just hubris and bluster, it’s pure impotence. If the talks this week don’t provide a solution, or a realistic proposal for one, Greece will be very close to leaving the eurozone. Syriza will not agree to continue with the deals the Samaras technocrats have agreed with the Troika, for the simple reason that their voters have trusted them with the mission to throw out those deals. Otherwise, they might as well have stayed with Samaras, and the elections would have no meaning.

Brussels and Berlin – and Paris and Amsterdam – have such trouble understanding what democracy means, they prefer to ignore it. But it was them who saddled their own voters with the debt which results from wagers on Greece gone awry, it wasn’t the Greek population. The entire western world has elected to not restructure the debt of its banking system. And don’t be confused, that’s not an economic choice, it’s a political one.

A lot more money has been thrown at maintaining the banking system, hopelessly bankrupt as it is no matter what, than would have been needed to guarantee the bank accounts of all citizens and all small businesses. Now the banks are still there, and so is their debt, but the people are sinking into an endlessly dark pool. Not an economic choice, a political one.

What we will see envelop this week is a game in which accusations will grow ever more wild and grotesque, but also a game in which Greece in the end will not do what everyone still seems to expect it to do. Because that would require for Syriza to betray the people who voted for them. Not going to happen.

The underlying – but we’re way past that by now – problem was explained quite well by UofMaryland professor Peter Morici:

Greek Revolt Over Austerity Is Long Overdue

Europe has few of the mechanisms that facilitate adjustment in the United States, which has a single currency across a similarly wide range of competitive circumstances. A single language permits workers to go where the jobs are, whereas most Greeks and Italians are stuck where they are born. New Yorkers’ taxes subsidize public works, health care and the like in Mississippi through the federal government in ways the European Commission cannot accomplish.

Germany uses its size and influence to resist changes in EU institutions that could alter fiscal arrangements. Hence, the Greeks and other southern Europeans were forced to borrow heavily from private lenders in the north – mostly through their commercial banks – to provide public services, health care and similar services that were hardly overly generous when measured by German standards.

All this kept German factories humming and German unemployment low. When the financial crisis and meltdown of global banking made private borrowing no longer viable, Greece and other southern states were forced to seek loans directly from Germany and other northern governments. Bailouts implemented by Germany through the ECB, the IMF and the European Commission required labor market reforms, cuts in wages and pensions, higher taxes, and less government spending. All to restore Greek competitiveness, growth and solvency – and all have absolutely failed.

The eurozone is by design and of necessity a predatory ‘union’. The US would be too, to an even greater extent than it is today, if it didn’t have a transfer of federal tax revenue from New York to Nowhere, Nebraska. And it wouldn’t be a union anymore.

So you know, for me, I’m fine with Greece blowing it up. There’s nothing good left from the initial idea that gave birth to the EU. It’s devolved into something utterly ugly, in which fat Germans driving their Mercs and Beamers down the autobahn can yell at their car stereos that those lazy Greeks must pay their due. Which stems from Merkel et al bailing out Deutsche Bank’s insanely outsized derivatives portfolios.

The whole thing is so morally bankrupt, it’s really insane that we’re still trying to have a serious discussion about it. The whole thing, the entire global banking system, is as morally bankrupt as it is financially. And we keep on believing that it matters what Berlin tells Athens to do. Our best hope is that Varoufakis refuses to be told what to do. It’s not as if we did anything about it, after all. We let others do our jobs and watch them do it on TV.

Here’s a prediction for you: the eurozone is ‘past its half-life’, or more correctly, it has over 50% of its existence behind it. It won’t last another 15 years. And perhaps much less than that. And I’m seriously thinking about moving to Greece. Just to experience sanity.

PS: A quantity is subject to exponential decay if it decreases at a rate proportional to its current value.