DPC Carondelet Street, New Orleans 1905
“This will have ZERO impact upon saving European economy for the money will NEVER create a single job.”
• ECB Is NOT Stimulating Economy, Its a Bank Bailout (Martin Armstrong)
The ECB’s monthly spending will include its existing programs to buy covered bonds and asset-backed securities. However, of the added purchases, Draghi said 12% will be debt issued by European Union institutions and agencies, and the rest will be government bonds – 88%. Given the problem that the banks use government bonds for reserves and these are NOT marked-to-market, you can read between the lines and see this is buying in bad debt that is not worth the pretend face value to begin with. This is a continued bailout for the banks – NOT a stimulus plan for the economy. This will have ZERO impact upon saving European economy for the money will NEVER create a single job.
This is a drop in the bucket for this group of assets amounts to about €2.7 trillion euros. This is reserves and they will swap the bad debts and switch to German bunds. They will be looking to change the way sovereign debt is held without mark-to-market accounting. You do not have Daniele Nouy, the euro area’s top bank supervisor, coming out saying the loophole needs to be changed without Draghi buying in all the crap first. So sorry, this is a coordinated attack that will by no means create inflation, it is trying to save the banking system that is going down in flames. If Greece defaults, holy hell will be unleashed as a contagion in sovereign debt.
ECB QE only works if there are enough bonds for sale.
• If Size Matters, the ECB Is Still Falling Short (Bloomberg)
The European Central Bank joined the quantitative easing party last month, six years after the U.S. Federal Reserve got it going. It still may not have bought much in the way of cheer, even as investors praised it for being larger than anticipated at 1.1 trillion euros ($1.26 trillion). Stretching out forecasts, Nomura International Plc economists led by London-based Jacques Cailloux reckon the assets purchased by the ECB will total about 6% gross domestic product by the end of 2015. By contrast, the Fed’s purchases will amount to 25% of GDP, just ahead of the Bank of England’s 22%, even though both have shelved their bond-buying.
The Bank of Japan is the runaway leader in the group, swallowing assets equivalent of 60% of GDP by the end of the year. The disparity has Cailloux and colleagues predicting that the Frankfurt-based central bank may need to do more, with a program set to run at less than a third the pace of the Fed’s. “If you believe in the effectiveness of quantitative easing, the ECB’s program will need to grow much more significantly before it has a macroeconomic impact,” the Nomura team said in a report last week.
The Varoufakis approach: charm, charisma and venom.
• Greek Debt Will Make ECB QE Problematic (MarketWatch)
Greece’s refusal to engage with the international troika of creditors will worsen further one of the chief worries about the European Central Bank’s asset purchase program due to start next month — a shortage of prime government paper in the euro area. As financial markets fret about a potential halt to ECB-approved emergency liquidity for Greece, capital is likely to flow further into the havens of top-rated government bonds around Europe. The Bundesbank’s undertaking to purchase roughly €15 billion a month of securities, of which the lion’s share would be German sovereign bonds, is looking problematic a month before the program starts. Many traditional domestic buyers of German government bonds such as banks and insurance companies are required to hold this paper for regulatory reasons.
Furthermore, foreign euro investors from official and private-sector institutions around the world are reluctant to exchange their German bond holdings in the light of general worries over the euro’s stability following tough talk by the new Greek government over its €320 billion of public debt, 85% to 90% of which is held by the troika of European governments, the ECB and the IMF. Anticipation of ECB buying as well as renewed doubts about Greece have sparked large-scale rises in German bond prices. Yields on 10 year paper , above 1% five months ago, touched a record low of just below 0.3% last month. Yields are negative up to maturities of five years, making the Bundesbank extremely cautious about buying such paper even if it can find holders willing to sell.
The flurry over German bonds takes place as Yanis Varoufakis, Greece’s newly appointed finance minister, has embarked on a European tour to set out the Athens government’s economic strategy. In London on Monday after visiting Paris and before he travels to Rome, Varoufakis pointedly has not yet scheduled a trip to Germany. The new minister combines charm, charisma and expertly articulated academic venom, a disconcertingly effective combination that will pose big problems for the German government and the ECB when he eventually reaches Berlin and Frankfurt. Chancellor Angela Merkel, who has refused to countenance a reduction in the face value of Greek debt, seems likely eventually to submit to a further stretching out of maturities on officially held debt as well as a reduction in Greece’s already low interest-rate burden, which would sizably reduce the real value.
“It’s difficult to predict anything; It’s all about politics. The real deadline will be when the bailout program ends, or possibly a bit later than that. The base case for most people is still that these negotiations will go reasonably well.”
• Tsipras Proves Bullish Surprise as Bonds to ETFs Reveal No Panic (Bloomberg)
Traders who got attached to bets that Greek financial markets will unravel are getting a lesson in politics. Spurred by signs the new government is softening its stance on debt payments, Greece’s ASE Index has jumped 16% in two days, the most since 1990. The yield on 10-year bonds fell 1.43 percentage points to 9.52% on Tuesday and sits almost 35 percentage points below highs reached before the nation held the biggest-ever reorganization of sovereign debt in 2012. An exchange-traded fund tracking Greek equities has received more than $45 million in fresh cash this year. The reversal shows the dangers of committing to bearish trades in Greece, where newly empowered leaders are showing signs of compromise after pledging to loosen austerity measures imposed two years ago.
While the ASE has fallen 30% in five months, it’s posted seven separate rallies of 4% or more along the way, including an 11% surge on Tuesday. “It’s difficult to predict anything,” said Veronika Pechlaner, an investment manager at Ashburton Ltd. in Jersey, the Channel Islands. “It’s all about politics. The real deadline will be when the bailout program ends, or possibly a bit later than that. The base case for most people is still that these negotiations will go reasonably well.” Shares are proving resilient in a country where the economy is forecast to grow 1.9% this year, according to the median economist projection in a Bloomberg survey. In 2014, gross domestic product rebounded from the longest and steepest recession on record.
A plunge in bank shares sent the ASE to its lowest level since September 2012 last week after Syriza leader Alexis Tsipras’s pledge to seek a writedown of Greek debt helped him win the Jan. 25 vote. Since former PM Samaras announced presidential elections in December, intraday stock swings for the ASE have doubled from their one-year average, data compiled by Bloomberg show. Robert Shiller said investors may have overreacted. The price of Greek stocks doesn’t reflect their earnings potential, he said last week. While the nation’s bonds had the worst three-month returns of 34 sovereign securities tracked by Bloomberg’s World Bond Index, the selloff was much milder than in 2012, when Greece’s membership in the euro area was at stake. That year, private investors forgave more than €100 billion of debt, opening the way for a new rescue package as the country’s debt reached 171% of its 2011 GDP.
“The fact that Greece is making this turn and putting itself slightly more open for discussion has led to the spread narrowing, with an outperformance by Greece of course..”
• Greek Bonds Rally With Italian Peers as Tsipras Said to Retreat (Bloomberg)
Greece’s three-year notes rallied and credit-default swaps tied to its bonds slid as the government was said to retreat from a demand for a debt writedown, looking to avoid a crisis that may have led to private-investor losses. Greek 10-year yields fell the most since 2012 as stocks rose for a second day. Finance Minister Yanis Varoufakis said in London late on Monday that Greece wants to exchange debt owned by the European Central Bank and the European Financial Stability Facility for new obligations linked to economic growth, according to a person who attended the meeting and asked not to be identified because they weren’t authorized to speak publicly. Italian and Spanish 10-year bonds climbed. “The fact that Greece is making this turn and putting itself slightly more open for discussion has led to the spread narrowing, with an outperformance by Greece of course,” said Mathias Van Der Jeugt at KBC Bank in Brussels.
“Nothing is mentioned on the private sector. In 2012 it was the private sector that took the biggest hit.” Greek three-year yields decreased 325 basis points, or 3.25percentage points, to 16.36% at 4:30 p.m. London time after jumping to 20.05%. The 3.375% security due July 2017 rose 4.82, or 48.20 euros per 1,000-euro ($1,149) face amount, to 75.38. Bond trading still signals losses could be in store for investors, with the spread between shorter- and longer-dated debt indicating a risk of a restructuring sooner rather than later. Ten-year rates plunged 144 basis points to 9.51%. Typically investors get higher yields for holding securities with a longer maturity to compensate for the greater risk of fixed returns being eroded by inflation.
Greek equities rallied for a second day, led by lenders. The ASE Index climbed 10%, the steepest increase since August 2011. Italy’s FTSE MIB Index and Spain’s IBEX 35 Index are up more than 2%. Trading of Greek government bonds across all maturities through the electronic secondary securities market, or HDAT, was €6 million on Monday, ANA reported. Monthly trading volumes plunged to zero in October 2011 from a peak of 136 billion euros in September 2004, Bank of Greece data show. The difference between the bid and offer yields for Greek 10-year securities, a measure of the bonds’ liquidity, was about 35 basis points on Tuesday. In contrast, the spread on similar-maturity German bunds, the euro region’s benchmark securities, was 0.2 basis point.
Semantics rule the day.
• Greek Stocks Surge 10% On ‘Creative’ Debt Plan (CNBC)
Greece’s new left-wing government are keeping markets and euro zone leaders on their toes, dropping calls for a debt haircut in return for growth-linked bonds – a plan some analysts said could be accepted by the country’s international creditors. On Monday, Greece’s Finance Minister Yanis Varoufakis unveiled plans designed to end the government’s confrontation with its creditors, proposing a swap of outstanding debt for new growth-linked bonds. The comments buoyed hopes that a debt deal could be reached and European stock markets reacted positively Tuesday, with the Athens stock exchange trading 10% higher by 1 p.m. GMT. The yield on 10-year Greek government bonds has also dropped sharply from 11.3% on Monday to 10.4% Tuesday.
Until now, the anti-austerity Greek government and its leader Alexis Tsipras have appeared to be on something of a collision course with the country’s international creditors. But speaking to the Financial Times on Monday during his visit to London to meet the U.K. Chancellor George Oscborne, Varoufakis said the government would no longer call for a headline write-off of Greece’s €315 billion foreign debt. Instead it would request a “menu of debt swaps” to ease the burden, he said, including two types of new bonds. The first type, indexed to nominal economic growth, would replace the European rescue loans, and the second, which he termed “perpetual bonds”, would replace ECB-owned Greek bonds, the FT reported. The next test for the proposals could come on Wednesday when Prime Minister Tsipras meets with European Commission President Jean-Claude Juncker in Brussels.
A spokesman for the Commission, Margaritis Schinas, said on Tuesday that while any solution on Greek debt had to pass muster with all 19 euro-area countries, Europe was willing to listen to Greece’s proposals. “We are ready to hear the Greek government’s concrete plans and to have constructive discussions on the next steps,” Schinas told reporters. Chief Market Analyst at CMC Markets, Michael Hewson, said the prospect of some form of debt swap had, “soothed fears that the new Greek government was intent on provoking a confrontation with its European partners, with a view to exiting the euro.” “While the initial proposals could well run into obstacles with respect to EU rules about monetary financing, the fact that a new approach is being tried has to be welcomed, given how much of a disaster the current bailout program has been,” he said in a note Tuesday.
” If one side has more resources than the other, though, things get interesting. It turns out the weaker side has a clear interest in increasing the number of fronts.”
• Greece Plays Colonel Blotto With Europe (Bloomberg)
Greek officials are flying around Europe this week, trying to talk to their counterparts in different countries instead of the “troika” of the IMF, ECB and EU that had been their negotiating partner up to now. Why would they do this? One explanation can be found in a game known as Colonel Blotto. In Colonel Blotto, adversaries allocate troops across multiple fronts. Whoever has the most troops on a particular front wins that battle, and whoever wins the most battles wins the war. If each side goes to war with the same number of troops, Colonel Blotto is a frustrating game that no one can reliably win. If one side has more resources than the other, though, things get interesting. It turns out the weaker side has a clear interest in increasing the number of fronts.
To illustrate, consider a Colonel Blotto game where one side has 50 soldiers and the other 33. If there is only one front, the outcome is certain – 50 is more than 33. If fighting expands to three fronts, the stronger side can still achieve certain victory by allocating 17 soldiers to the first front, 17 to the second and 16 to the third. The weaker side can win one front, but then wouldn’t have enough troops left to win either of the other two. Spread things out over five fronts, though, and this certainty vanishes. If the stronger side simply puts 10 soldiers on each front, the weaker one can win by allocating 11 troops to three fronts and none to the other two. Every other possible allocation by the stronger side can be beaten as well. Most of the time it won’t be – it’s still better to have 50 soldiers than 33 — but for the weaker side a hopeless effort has been transformed into one that can succeed.
There are clear echoes of this approach in the new Greek government’s attempt to shift the negotiations away from a single powerful adversary to multiple ones. Colonel Blotto also helps explain why Angela Merkel and Dutch Finance Minister Jeroen Dijsselbloem, chairman of the eurogroup, are trying to keep discussions on a single front. Blotto doesn’t explain everything, of course. It’s just an oversimplified model. But game theory does illuminate a lot about high-stakes negotiations. That is probably even truer than usual for these particular high-stakes negotiations, given that Greek Finance Minister Yanis Varoufakis once co-authored a book titled “Game Theory: A Critical Introduction.”
It would be an improvement. Syriza is holding separate talks with the IMF.
• Varoufakis Wants OECD, Not Troika Inspectors (Kathimerini)
Finance Minister Yanis Varoufakis has proposed that the Organization for Economic Cooperation and Development (OECD) replace the auditors representing Greece’s so-called troika of international creditors, Kathimerini understands. Varoufakis made the proposal in Paris over the weekend to his French counterpart Michel Sapin and European Economic and Monetary Affairs Commissioner Pierre Moscovici, sources said. The OECD would offer technical advice and monitor reforms but it was unclear whether the proposal foresees the involvement of European Commission or International Monetary Fund representatives.
The OECD had supplied a “toolkit” of measures to remove barriers to competition to the previous government. Varoufakis hopes to base the new government’s reforms on proposals from the OECD, Kathimerini understands. OECD Secretary-General Angel Gurria is due in Athens on February 11. On the same day, eurozone finance ministers are likely to hold an extraordinary summit in Brussels to discuss Greece, sources said. Varoufakis is in Frankfurt on Wednesday, for talks with ECB President Mario Draghi, and is due in Berlin Thursday to meet his German counterpart, Wolfgang Schaeuble.
“We have a democratic mandate to challenge the whole philosophy of austerity..”
• Greeck Rock-Star Finance Minister Varoufakis Defies ECB’s Drachma Threats (AEP)
Greece’s finance minister has denounced eurozone threats to cut off funding for Greek banks later this month as political intimidation, warning in fiery language that his country’s democratic revolution will not be crushed into submission. Yanis Varoufakis, the emerging rock-star of Europe’s anti-austerity uprising, said the ECB is straying into murky waters by openly stating that it may cease to act as lender-of-last resort for the Greek financial system. “These threats are perfectly illegitimate. They are trying to asphyxiate us with arbitrary deadlines,” he said during a lightning tour of EU capitals to drum up support. A string of ECB officials have said in recent days that the institution would no longer accept Greek debt as collateral in exchange for loans after February 28, if Greece refuses to cooperate with the EU-IMF troika and walks away from its bail-out deal.
The move would cut off up to €54bn of liquidity currently keeping Greek lenders afloat. Syriza’s leaders are fully aware that this would trigger a banking collapse, full-blown default and ejection from the euro within days. Greek officials grumble that the ECB is acting as a political enforcer without treaty authority. Frankfurt has full discretion over how it sets its own collateral rules and can change them at any time regardless of what the rating agencies say. The Athens stock market has shrugged off the dispute for now. The ASE index jumped 11pc on Tuesday on hopes that a €345bn “masterplan” for Greek debt unveiled by Mr Varoufakis in London will finesse the neuralgic issue of a debt writedown and avert a showdown, even though EMU creditors remain deeply sceptical. Bank stocks surged 17pc, while Greece’s 10-year bond yields plummeted by 137 points to 9.26pc.
Mr Varoufakis is braced for an arid meeting on Thursday with his German counterpart and long-time nemesis Wolfgang Schäuble, a man he once accused – borrowing from Tacitus – of reducing Europe to a desert and calling it peace. “I will try to be as charming as I can in Berlin. I will tell Mr Schäuble that we may be a Left-wing riff-raff but he can count on our Syriza movement to clear away Greece’s cartels and oligarchies, and push through the deep reforms of the Greek state that governments before us refused to do,” he said. “But I will also tell him that we are going to end the debt-deflation spiral and do what should have been done five years ago. That is not negotiable. We have a democratic mandate to challenge the whole philosophy of austerity,” he said.
Mr Varoufakis said he had asked Brussels for an increase in the troika’s €15bn limit on issuance of short-term bills by the Greek treasury, money desperately needed to plug a critical funding gap over coming months. He denied reports of a €10bn plea. “We need the fiscal space until June to hammer out a plan,” he said. The decision would require the political assent of all three members of the EU-IMF troika, including the ECB. He will discuss the details with the ECB’s Mario Draghi in Frankfurt on Wednesday. The flamboyant finance minister, surviving on adrenaline as he darts from one EU power centre to another, is an ardent pro-European but has no illusions about the bare-knuckled nature of the struggle over Greece. “We have been warned that there are certain members of the Eurogroup who want to shoot us down. But we also have support. It is evenly balanced,” he said.
“We don’t want bankers to be reassured by Varoufakis just now. We want them to be terrified.”
• Greek Finance Minister Looks Like A Normal Person – How Refreshing (Guardian)
A yawning gulf has opened in the world of financial diplomacy. It is not whether to bail out Greece yet again. It is how a Greek finance minister should dress when visiting a chancellor of the exchequer. Yanis Varoufakis arrived in Downing Street yesterday in black jeans, a mauve open-necked shirt that was not tucked in, and the sort of leather coat Putin might wear on a bear hunt. If George Osborne still didn’t get the point, Varoufakis had a No 1 haircut. What was going on? What was going on was real life. If I were a banker and had seen Varoufakis arrive in the same dark suit as Osborne was wearing, what would I think? I would think here was a man eager to be accepted into the club. He dresses like a banker, therefore he thinks like a banker, which is how today’s finance ministers are supposed to think. I would be reassured.
We don’t want bankers to be reassured by Varoufakis just now. We want them to be terrified. Don’t mess with me, he is saying. I have a sovereign electorate behind me, and I have a bankrupt country. When your banks go bankrupt you bail them out. When your businesses go bankrupt you write off their debts and let them start again. Do the same to me. Your banks have lent my country crazy sums of money, way beyond the bounds of caution or common sense. Now you honestly think you will get it back. You can’t. Read my lips, look at my jeans, feel my stubble. You can’t. Get real. Europe just now needs the shock of Varoufakis’s livery. It needs to be jolted out of any belief that Greeks can be made to return mostly Germany’s reckless loans by being plunged into perpetual penury.
We know this is not possible. It is the economics of Little Dorrit, with Greece in the Marshalsea prison. It is exactly the mistake Europe made, ironically in handling Germany, over war reparations in 1919. Look where that led. The eurozone, fashioned as a deutschmark zone, was a disaster waiting to happen, and not just for its poorer members. That disaster has happened. Greece, and now all of Europe, are suffering because Europe is still being run by and for bankers who simply want their money back. This cannot continue, and Greece’s recent election is a golden opportunity to snap out of it. With luck Spain will follow and perhaps Italy, until the eurozone shrinks to a size capable of being responsibly managed. Meanwhile Greece has a finance minister who looks like a normal human being. That is a start.
“Chancellor Angela Merkel, who is still assessing Prime Minister Alexis Tsipras’s motives, is taking a tough approach with the new premier and wants to avoid being drawn into a duel with him..”
• Merkel Expects Greek Funding Talks to Drag On for Months (Bloomberg)
Germany expects talks with Greece to drag on until after the current round of bailout funding runs out at the end of the month and is prepared to play a waiting game until April or May, when the country approaches a cash crunch, a person familiar with the matter said. Greece would not immediately go bankrupt at the end of February because it has resources to last beyond that point and Germany is ready to hold off until there is a more urgent need to strengthen its bargaining position, said the person, who asked not to be identified discussing internal talks. Chancellor Angela Merkel, who is still assessing Prime Minister Alexis Tsipras’s motives, is taking a tough approach with the new premier and wants to avoid being drawn into a duel with him, another official said.
No one from the chancellery has met with him yet. Greece is already backing down from earlier demands, retreating Monday from its call on the euro area to write down its debt, and instead proposed to exchange existing borrowings for new bonds linked to the country’s growth. The proposal marks a change of course for Tsipras, who bowed to virtually unanimous opposition just a week after he took office. “The Greek government is still working on its position,” Merkel said today in Berlin, declining to comment on specific proposals. “That’s more than understandable considering the government has been in office for a few days. We’re waiting for recommendations and then we’ll go into talks.”
Greek stocks and bonds surged after Finance Minister Yanis Varoufakis outlined plans late Monday to swap some debt owned by the ECB and the European Financial Stability Facility for new securities. Speaking to about 100 financiers in London, Varoufakis indicated that the move would allow Greece to avoid imposing a formal haircut on creditors, according to a person who attended the meeting. “Debt will be rendered sustainable, even if we replace haircut with euphemisms and swaps,” Varoufakis tweeted from his personal account. “No U-turn!” Tsipras and Varoufakis, whose Syriza party won elections last month on a pledge of ending European Union-backed austerity policies, are seeking allies. They’re in Rome on Tuesday. Tsipras is next scheduled to visit Brussels and Paris. Varoufakis will go to Frankfurt to meet ECB President Mario Draghi tomorrow and then Berlin to see his German counterpart, Wolfgang Schaeuble.
Democracy? “We’re not going to change everything because of one electoral result that some people may like and some people don’t like,” European Commission President Jean-Claude Juncker said..”
• Greek Retreat on Writedown May Move Fight to Spending (Bloomberg)
Greece’s retreat from its call for a debt writedown may shift attention to the second front in Prime Minister Alexis Tsipras’s conflict with euro-area leaders: his desire to increase spending and roll back austerity. Tsipras won election Jan. 25 on promises to raise wages and pensions, end public-sector firings and stop state asset sales – all policies that would breach the conditions on the bailout aid. He also advocated a writedown, a policy dropped late Monday in favor of a debt exchange amid virtually unanimous opposition in the euro area. “Reality is about to bite: Tsipras will realize that the constraints are very tight,” Kevin Featherstone, professor of contemporary Greek studies at the London School of Economics, said in an e-mail.
“It seems certain that the euro zone will insist on Greece committing itself to continued structural reform.” Greek stocks and bonds rallied after Finance Minister Yanis Varoufakis outlined plans to swap some Greek debt owned by the European Central Bank and the European Financial Stability Facility for the new securities. He indicated that the move would allow Greece to avoid imposing a formal haircut on creditors, according to a person who attended the meeting and asked not to be identified because they weren’t authorized to speak publicly. “Debt will be rendered sustainable, even if we replace haircut with euphemisms and swaps,” Varoufakis tweeted from his personal account. “No U-turn!”
The yield on 10-year notes fell 104 basis points to 9.9% at 2:15 p.m. in Athens. The benchmark stock index surged 8.8%. Tsipras and Varoufakis are touring European capitals this week seeking allies in their anti-austerity campaign. They’re due in Rome on Tuesday and Tsipras is also scheduled to visit Brussels and Paris. They’ll have to overcome to moving away from commitments to limit spending and increase economic competitiveness in exchange for €240 billion in aid commitments since 2010. “We’re not going to change everything because of one electoral result that some people may like and some people don’t like,” European Commission President Jean-Claude Juncker said today at the European Parliament in Brussels.
“..the terms of Greece’s current servitude can’t be tweaked, “restructured” or “swapped” within the Brussels bailout framework.”
• Why Greece Must Repudiate Its ‘Banker Bailout’ Debts, Exit The Euro (Stockman)
Now and again history reaches an inflection point. Statesman and mere politicians, as the case may be, find themselves confronted with fraught circumstances and stark choices. February 2015 is one such moment. For its part, Greece stands at a fork in the road. Syriza can move aggressively to recover Greece’s democratic sovereignty or it can desperately cling to the faltering currency and financial machinery of the Euro zone. But it can’t do both. So by the time the current onerous bailout agreement expires at month end, Greece must have repudiated its “bailout debt” and be on the off-ramp from the euro. Otherwise, it will have no hope of economic recovery or restoration of self-governance, and Syriza will have betrayed its mandate. Moreover, the stakes extend far beyond its own borders.
If the Greeks do not take a stand for their own dignity and independence at what amounts to a financial Thermopylae, neither will the rest of Europe ever escape from the dysfunctional, autocratic, impoverishing superstate regime that has metastasized in Brussels and Frankfurt under cover of the “European Project”. Indeed, the crony capitalist corruption and craven appeasement of the banks and financial markets that have become the modus operandi there are inexorably destroying the EU and single currency. By fleeing the euro and ECB with all deliberate speed, therefore, the Greeks will give-up nothing except the opportunity to be lashed to the greatest monetary train wreck ever recorded. So Greek Finance Minister Yanis Varoufakis has the weight of history on his shoulders as he makes the rounds of European capitals this week.
His task in not merely to renounce the ham-handed “austerity” dictated by the Troika. Apparently even the French are prepared to acknowledge that the hideous suffering that has been imposed on Greece’s less fortunate citizens must be alleviated. Yet the latter is only a symptom of what’s wrong and what stands in the way of a real solution. The true evil started with the bailouts themselves and the resulting usurpation by the EU politicians and apparatchiks of both financial market price discovery and discipline and sovereign democratic prerogatives. Accordingly, the terms of Greece’s current servitude can’t be tweaked, “restructured” or “swapped” within the Brussels bailout framework. Instead, Varoufakis must firmly brace his interlocutors on the true history and the condition precedent that stands before them. Namely, that the Greek state was effectively bankrupt even before the 2010 bailout, and that the massive amounts of debt piled upon it thereafter was essentially a fraudulent conveyance by the EU.
“Varoufakis described the debt-swap proposal as a form of “smart debt engineering” that would avoid using the term debt “haircut,” which is seen as unacceptable to German taxpayers.”
• Greece May Be ‘Weeks’ Away From Running Out Of Money (MarketWatch)
Investors on Tuesday cheered signs of progress toward resolving the new Greek government’s debt standoff with its eurozone partners, but it’s worth keeping in mind — as the table above illustrates — that there’s not a lot of time to spare. Carl Weinberg, chief economist at High Frequency Economics in Valhalla, N.Y., reminded clients in a recent note that Greece’s debt schedule eventually leads to a scenario that ends in a government shutdown and/or default, possibly within a matter of weeks. “Greece will end up with a default, possibly in the form of a restructuring with a sizable haircut, but possibly in the shape of an outright default,” Weinberg wrote. “The only question is how soon. To believe otherwise cannot possibly be more than wishful thinking.”
Greek Prime Minister Alexis Tsipras and Finance Minister Yanis Varoufakis are hitting European capitals in a bid to convince European leaders to ease the terms of the country’s €240 billion bailout. Varoufakis on Wednesday said Greece needs a “bridge agreement” that could turn into a full accord by June. A day earlier, Varoufakis told the Financial Times that Athens would propose a “menu of debt swaps” that would include two new types of bonds: The first would replace European rescue loans with bonds indexed to economic growth, while the second would consist of “perpetual bonds” that would replace the bonds held by the European Central Bank.
Varoufakis described the debt-swap proposal as a form of “smart debt engineering” that would avoid using the term debt “haircut,” which is seen as unacceptable to German taxpayers. Pinning down the exact date when the government would run out of cash under current circumstances is difficult due to a lack of daily data on its exact cash position. But Weinberg says that, unofficially, the government was down to €2 billion in mid-January. In order to finance all the repayments, Greece would have to roll over the outstanding T-bills, run a balanced budget on at least a cash basis, and sell €27.6 billion in new bonds, Weinberg says.
Chest thumping.
• European Central Bank Resists Latest Greek Bailout Plan (FT)
The European Central Bank is resisting a key element of the Greek government’s new rescue plan, potentially leaving Athens with no source of outside funding when its international bailout expires at the end of the month. Yanis Varoufakis, Greek finance minister, had proposed to European officials that Athens raise €10bn by issuing short-term Treasury bills as “bridge financing” to tide the country over for the next three months while a new bailout is agreed with its eurozone partners. But the ECB is unwilling to approve the debt sale. It will not raise a €15bn ceiling on t-bill issuance to $25bn as requested by Athens, according two officials involved in the deliberations. “The Greek plan relies fully on the ECB,” said another eurozone official briefed on the talks. “The ECB will play hardball.”
Without T-bill financing, Athens will exit its bailout without access to emergency funding for the first time since the first Greek bailout began in May 2010. The ECB’s stance raises the stakes in the stand-off between the anti-austerity government in Athens and its international creditors, which if unresolved, could end with Greece running out of cash within weeks. It is also likely to puncture a sense of optimism among investors over Greece’s alternative rescue plan and a softening of its insistence on debt cancellation, which lifted the Athens stock market 11.3% on Tuesday and pared 10-year borrowing costs by nearly a full percentage point. The Greek government has said it could survive without additional cash until June, when a €3.5bn bond comes due. But many EU officials fear allowing the programme to lapse could restart market panic and spur a bank run.
Jean-Claude Juncker, the European Commission president, is expected to press Alexis Tsipras, the new Greek prime minister, to ask for a “technical” extension of the current bailout when the two men meet in Brussels on Wednesday. Eurozone finance ministers are expected to hold emergency talks in Brussels on February 11 to discuss Mr Varoufakis’s plans. The Greek finance minister is due to meet Mario Draghi on Wednesday. Despite pressure from several EU leaders, officials who have met Mr Varoufakis say he has insisted the new government cannot ask for an extension for political reasons, since it would send a signal they are willing to go along with the current bailout — a message Mr Varoufakis reiterated at meeting on Monday in London with leading bankers. “They realise their leverage is low but they feel they are on a mission, and he gives the impression that they are prepared to risk a lot,” said one banker at the London meeting. “Not renewing the programme is just an illustration. He was very clear that they will not ask for an extension.”
Dismantle the IMF and forgive all debt owed to it.
• It’s Not Just Greece And Spain That Need Debt Restructuring (Guardian)
As the news of Syriza’s victory in Greece sinks in, the question dominating the headlines is how it will renegotiate the country’s massive debt, close to twice the size of its GDP. All the signs are that the incoming government is going to renege on previous commitments to austerity, agreed with/imposed by creditors, refuse to pay its debts in the timeline agreed and, consequently, end the cycle of public spending cuts that stricter repayment has required. And Greece is not the only headache for creditors, with concerns already being raised about the impact of the country’s tough stance further afield. If Greece can go down this route, why not Spain, a far bigger economy? Podemos, the Spanish equivalent of Syriza, is the country’s most popular party, according to polls, and it is committed to following Syriza’s lead.
But why stop at Spain? It is, perhaps, natural that European commentaries focus on regional problems, but the impossible situation faced by Greece, and the hard choices it implies, is precisely comparable to similar situations in far poorer countries going back decades, and still continuing today. The sacrifices being paid by Greek people are extreme for a European context, but nothing compared with the chronic shortages and poor service provision which the citizenry of poorer countries suffer, in part as a consequence of paying debts which are both unpayable and unfair. After years of battles with creditors, governments of poor countries and campaigners finally won massive debt relief at the turn of the century as part of the heavily indebted poor country initiative and follow-up actions.
But despite substantial write-downs in the countries worst affected by unsustainable repayments, debt remains a major problem. An analysis published last year by the Overseas Development Institute warned of the possibility of debt crises in some of the world’s poorest countries, due to a combination of factors, not least decent economic growth, which is encouraging countries like Ghana and Senegal to take on more debt without necessarily being in shape to respond if the currently sound context turns rough. Meanwhile, the Jubilee Debt Campaign has highlighted the debts still being paid by the countries ravaged by Ebola, with Sierra Leone, Guinea and Liberia owing more than $480m to the IMF alone, and still repaying millions of dollars at the height of the crisis.
Gallup CEO says what we have known for ages.
• Gallup CEO: The Big Lie: 5.6% Unemployment (Zero Hedge)
Here’s something that many Americans – including some of the smartest and most educated among us – don’t know: The official unemployment rate, as reported by the U.S. Department of Labor, is extremely misleading. Right now, we’re hearing much celebrating from the media, the White House and Wall Street about how unemployment is “down” to 5.6%. The cheerleading for this number is deafening. The media loves a comeback story, the White House wants to score political points and Wall Street would like you to stay in the market. None of them will tell you this: If you, a family member or anyone is unemployed and has subsequently given up on finding a job – if you are so hopelessly out of work that you’ve stopped looking over the past four weeks – the Department of Labor doesn’t count you as unemployed.
That’s right. While you are as unemployed as one can possibly be, and tragically may never find work again, you are not counted in the figure we see relentlessly in the news – currently 5.6%. Right now, as many as 30 million Americans are either out of work or severely underemployed. Trust me, the vast majority of them aren’t throwing parties to toast “falling” unemployment. There’s another reason why the official rate is misleading. Say you’re an out-of-work engineer or healthcare worker or construction worker or retail manager: If you perform a minimum of one hour of work in a week and are paid at least $20 – maybe someone pays you to mow their lawn – you’re not officially counted as unemployed in the much-reported 5.6%. Few Americans know this. Yet another figure of importance that doesn’t get much press: those working part time but wanting full-time work.
If you have a degree in chemistry or math and are working 10 hours part time because it is all you can find – in other words, you are severely underemployed – the government doesn’t count you in the 5.6%. Few Americans know this. There’s no other way to say this. The official unemployment rate, which cruelly overlooks the suffering of the long-term and often permanently unemployed as well as the depressingly underemployed, amounts to a Big Lie. And it’s a lie that has consequences, because the great American dream is to have a good job, and in recent years, America has failed to deliver that dream more than it has at any time in recent memory. A good job is an individual’s primary identity, their very self-worth, their dignity – it establishes the relationship they have with their friends, community and country. When we fail to deliver a good job that fits a citizen’s talents, training and experience, we are failing the great American dream.
Next up: the kitchen sink.
• Cash-Starved Oil Producers Trade Treasured Pipelines for Money (Bloomberg)
Oil and natural gas producers confronting a cash drain are auctioning off the family silver: pipelines and processing plants. Bakken shale billionaire Harold Hamm and Canadian gas giant Encana are among the latest to peddle some of their most valuable assets and steadiest earners. They don’t have much choice — as the oil price collapse deflates the value of drilling operations, pipes and plants are about the only things attracting big payments for producers vying to stay afloat. The deals for quick cash are another facet of the energy industry meltdown leading to more than $40 billion in spending cuts and thousands of job losses. The capital infusion comes with a trade-off because producers pay more to process and transport fuel over the lines and in the facilities they used to own.
“At some point they all get desperate enough,” said Michael Formuziewich at Leon Frazier in Toronto. Low prices will spur a rise in deals, he said. “The longer it goes on, the more we’ll see.” Midstream operations, as they’re known in the oil and gas industry, have retained their value even with crude trading near six-year lows because they act as toll booths that generate dependable cash, regardless of commodity prices. Offloading them lets producers avoid selling the oil fields at the heart of their businesses at steep discounts. The Hamm family’s Bakken pipeline network went for $3 billion, including debt, to billionaire Rich Kinder’s empire in a deal announced last month.
Encana is reaping C$412 million ($328 million) from the sale of gas pipelines and plants in Western Canada’s Montney shale region to Veresen and KKR in a December deal. Before the oil rout, Shell and Devon were already cashing in on infrastructure built when the shale boom took them into new regions not connected to the existing grid. Now, the incentive to give up pieces of these cash-generating treasure troves is that much stronger. “The decline in commodity prices should free up some assets that are embedded in various producers,” said Salim Samaha, a partner at Global Infrastructure Partners, an investment firm based in New York.
“Ukraine is solidly within Russia’s sphere of influence, and has been, really, for more than 500 years, and for an excellent reason that has been demonstrated most recently in Napoleon’s invasion of 1812 and then Hitler’s Operation Barbarossa”
• Apocalypse Now and Forever (Jim Kunstler)
.. what business do we have in Ukraine in the first place and why should it matter to us that they align with Russia? And more to the point: why is it not transparently obvious that Ukraine is solidly within Russia’s sphere of influence, and has been, really, for more than 500 years, and for an excellent reason that has been demonstrated most recently in Napoleon’s invasion of 1812 and then Hitler’s Operation Barbarossa, the invasion of 1941. In both cases, Russia owed its survival to the vast expanse of flat geography represented by Ukraine where “General Winter” was able to carry out his own defensive operations of relentless howling wind, snow, sub-zero temperatures, and frostbite that eventually vanquished the invaders.
Through most of modern times Ukraine has been under the explicit “protection” of the Russian Czars or has been an outright province under the former USSR. Hundreds of years before that, Kievan Rus was the center of an emerging Russian culture and kingdom that only later picked up and moved to Moscow. You get the picture: Ukraine has a long association with Russia, a principal association, not always happy, sometimes tragic, but a fact of life and history that the US and its foolish stooges in the EU bureaucracy now wish to challenge for absolutely no good reason. Does anybody who is not whacked out of his/her head on crack, or focused like a laser beam on the gender schism within the Kardashian Klan, remember when the US ever challenged the Soviets over Ukraine?
No. And for the excellent reason that we accepted the relationship for reasons stated above. So, whose idea is it now that we should start World War Three over this remote region where so many other reckless adventurers came to grief? And what, by the way, do our people mean by “defensive weapons?” Are not most modern weapons designed to work both ways? Anyway, I see the list includes “anti-armor missiles” (i.e. tank-killers) and “drones,” the latter presumably guided by comfortable American military gamers effortlessly targeting pixelated “bad guys” between Slurpee gulps and taco bites, not exactly American Sniper style.