creditocracy Archives - The Automatic Earth

The Chinese slowdown must be worrying for the Eurozone but for now it doesn’t seem to be rushing to take corrective action – to avoid another event like that happening in 2008, as this time the countries would not be in a position to help out the banks. If double digit growth in China has been what’s kept world growth going, it’s legitimate to expect the current economic slowdown to spread to the world economy, considering, for example, that every year, China is consuming 10% of the world’s oil and more than half of the world’s copper and iron. Right now the value of the Euro is strengthening and that means its value has gone up by about half the amount it devalued in June last year. This cannot help Europe’s economy even because when considering China, China absorbs 3% of Italian exports and 6% of German exports.

Germany is the winning country in this currency war because it doesn’t need to be able to devalue its currency as it is operating with a currency that is much weaker than its own economy.

It thus doesn’t need to devalue as has happened in China because it’s already operating with a Euro that’s weak in relation to its economic fundamentals, and at the same time, it’s not obliged to revalue as happened for Switzerland at the beginning of the year. Apart from the importance of monetary sovereignty, the situation in China confirms another lesson: in a healthy economy the currency must be endogenous. That means that the optimal quantity of a currency for healthy economic growth cannot be decided by a “deus ex machina“ whether that happens to be Draghi or the commercial banks that tighten or loosen credit facilities as they see fit, but for a healthy economy the quantity depends on the demand for money and on the expectations of consumers themselves about their future income.

On the other hand, by pumping more money into the system by expanding credit from the banks and doping the consumers and the real estate markets after having anchored the exchange rate has historically been the best way to subjugate the people by using private debt to remove their opportunity of future growth, mortgaging the income of the generations to come to pay the bankers the interest on the current debt. There are those who are right to call it “creditocracy”. It was like that in Latin America after the various currencies were anchored to the US dollar. It was also like that in Greece and in the countries on the periphery of Europe where consumption was disproportionately buoyed up because of easy access to German savings guaranteed by the Euro. It’s happening in China after its currency was anchored to the US dollar.

Zoe for president!

• Sovereign Debt as Weapon: Subverting Democracy in Greece (Zoe Konstantopoulou)

On the 25th of January 2015, only seven months ago, the Greek people through general elections gave a clear and unequivocal mandate to government and to parliament to do away with these homicidal policies. Negotiations started. A special Committee of the Parliament was formed, called the Truth Committee on Public Debt, to conduct an audit and a legal assessment of the debt it issued a preliminary report last June. The report found that the state’s sovereign debt is illegal, illegitimate, odious and unsustainable. It found that the sovereign debt has been concluded through procedures which grossly violate constitutional law, parliamentary procedure and fundamental human rights and freedoms guaranteed under international law, thereby justifying the denunciation of the debt.

It found that creditors had been acting in bad faith, knowingly burdening the country with unsustainable loans to save French, German and Greek private banks. Despite these findings, Greece’s creditors insisted that the people’s mandate be neglected. On June 25th, a 48 hour ultimatum was addressed to the Greek government asking it to accept, contrary to popular mandate, a series of measures dismantling labour law, abolishing social security guarantees and legal protection for over-indebted citizens, while at the same time requiring the sell-out of the most precious public assets and public enterprises, but also major ports, airports and public infrastructure. All to be sold or given away to repay an unsustainable and odious debt.

The Hellenic Parliament accepted the Government’s proposal to hold a referendum on the ultimatum, and the Greek people, through a large majority of 62%, rejected the measures. During the referendum week, international and foreign government officials tried to influence the referendum outcome through statements terrorizing the people. The referendum was held with the banks closed and capital controls imposed as a result for the ECB’s refusal to provide liquidity after the proclamation of the referendum. And yet, democracy prevailed. The people pronounced themselves clearly and said a 62% NO to those homicidal measures. What followed is a nightmare for every democratic conscience and a disgrace.

The creditors refused to consider the referendum outcome. They insisted, under the threat of provoking a bank-failure and a humanitarian disaster, that measures harsher than those rejected be adopted. [..] An over 100 page law construed in 1 article was passed on July 15th in less than 24 hours. A 1000 page law construed in 3 articles was passed on July 22nd in less than 24 hours. An almost 400 page law was passed on August 14, in 24 hours.

Seeing today’s last minute surge in Shanghai, this is not over.

• China Has Spent $236 Billion Trying to Rescue Its Stocks (Bloomberg)

China’s government has spent 1.5 trillion yuan ($236 billion) trying to shore up its stock market since a rout began three months ago, according to Goldman Sachs. The “national team” expended about 600 billion yuan in August alone, with the total now equivalent in value to 9.2% of China’s freely-traded shares, strategists including Kinger Lau wrote in a report dated Monday. Investor concern about what will happen when the government starts to pare these holdings is overdone, they wrote, citing past experiences in Hong Kong and in the U.S. The Shanghai Composite Index has tumbled 41% since its June high to erase $5 trillion in value from mainland bourses as leveraged investors fled amid signs of deepening weakness in the economy.

To stop the plunge, officials armed a state agency with more than $400 billion to purchase stocks, banned selling by major shareholders and told state-owned companies to buy equities. The rout, coupled with a shock devaluation of the yuan, has roiled global markets. The gauge slumped the most in two weeks on Monday on speculation government-backed funds halted intervention following the conclusion of a military parade last week. China Securities Finance, the agency tasked with supporting share prices, would no longer add to holdings unless there’s unusual volatility and systemic risk, although it would remain in the stock market for years to come, the regulator said on Aug. 14.

In the private sector, he would long have been fired.

• Draghi’s QE Dispenses Huge Losses to European Stock Markets (Bloomberg)

Mario Draghi’s stimulus program hasn’t quite succeeded at unleashing the desired animal spirits across Europe. Here’s the evidence: six months in, and 96% of companies in the Euro Stoxx 50 Index have actually gotten cheaper relative to earnings. The ECB’s plan to flood the financial system with cash by purchasing bonds was supposed to ignite the same celebration of risk-taking it did in the U.S. six years ago. In fact, the opposite has happened, culminating in as much as $526 billion of share values being wiped out last month. The failure of European quantitative easing to improve sentiment toward equities is a troubling sign to bulls as markets from Shanghai to New York endure their worst selloffs since 2011. Rather than set Europe apart as a haven, Draghi’s program has been marginalized in the stock market by events such as Greece’s credit impasse.

The Euro Stoxx 50 lost 9.2% in August amid concern China’s economy will subdue global growth. It rebounded 1.2% on Monday following a weekly drop. “People get very nervous when they feel there are no more policy levers left,” Graham Secker, Morgan Stanley’s head of European equity strategy, said by phone from London. “Investor confidence is extremely low at the moment, and everyone wants to de-risk. They don’t see who is going to ride to the rescue.” Going by economic data, Europe is making progress. Unemployment in the region unexpectedly fell, while German manufacturing expanded at a faster pace. Economists project Europe’s GDP will grow 1.5% this year, the most since 2011. And analysts still predict profits for companies in the currency bloc will increase 12% this year.

The figures are doing little to help stocks. In the latest rout, valuations in the Euro Stoxx 50 fell to 12.4 times projected earnings, compared with 15.3 when Draghi’s program started in March. Dragged down by exporters and commodity stocks, the gauge has tumbled 13% in the last four weeks – almost twice as much as the Standard & Poor’s 500 Index, where price-earnings ratios are about 19% higher. Europe’s carmakers – the companies that have most benefited from the depreciation in the euro – have seen valuations decline as much as 34% since this year’s peak. A similar drop occurred in energy share valuations, and a gauge of chemical stocks became 22% cheaper. France’s Vinci and Vivendi stand out as the only two companies in the Euro Stoxx 50 that trade at higher multiples than then.

“Deutsche Bank expects the combined amount of forex sales from the central banks to be $1.5T in the next 16 months.” Could be much more.

• Europe To Sink Into Deflation, Triggering Next Round Of Global Market Crash (SI)

Just one year after Mario Draghi reassured the market he would do ‘whatever it takes’ to ensure the inflation rate in the Eurozone will increase again, he seems to have been pushed back into a corner. The ECB once again had to reduce its economic growth expectations as well as the expectations for the average inflation rate in the Eurozone. Despite the ECB having been a huge buyer of bonds on the open market to increase the liquidity in the system, the €60 billion per month has been insufficient to create a serious trickle-down effect in the real economy. Whereas the central bank is targeting an inflation rate of 2% which it deems to be the ‘sweet point’ for a sustainably growing economy. The inflation expectation for the entire year 2015 is just 0.1% and is expected to increase to 1.5% in 2016 and 1.7% in 2017.

This also means that a ~~negative inflation~~ deflation in the next few months (on the back of a lower oil price) is a very realistic possibility now and it certainly looks like the ECB will have to step up its game to make sure it doesn’t lose control. But it also looks like it has maxed out some bond purchases, as one of the newly-instated updates on the bond-buying program is an increased ceiling of how much the ECB can buy of one issue. Whereas the previous ceiling was placed at 25%, the ECB has now increased this level to 33% and the market is now widely anticipating Draghi to upgrade his Bazooka to a Bazooka 2.0 as the ECB is reportedly considering to purchase more different asset classes, to extend the current program (which is scheduled to end in 12 months from now) and to expand the program from €60 billion per month to €75+ billion per month.

The different players in the currency war are now taking their next steps at a very fast pace. After the Chinese crash and the devaluation of the Yuan, the USA will now very likely hold off on increasing the benchmark interest rate, now the ECB will very likely increase the liquidity in the system by a few billions per week, but the next step will be unfolded next week when China will announce an updated status of its foreign currency reserves. Those reserves peaked at $4T in the summer of last year, but it will be very interesting to see how much of those reserves were dumped by China during its very agitated summer.

The forex reserves dropped by in excess of $40 billion in July, but this number will very likely be much higher in August, and Netherlands-based Rabobank is estimating the outflow could be in excess of $200 billion as the Chinese central bank had to dump foreign currency in an effort to rescue the Yuan from a semi-freefall. And this move could trigger another round of selling as Deutsche Bank expects the combined amount of forex sales from the central banks to be $1.5T in the next 16 months. Yes, that’s 1,500 billion dollar. And then the Federal Reserve will have to make the next move as a weaker Euro and Yuan is once again undermining the American economic growth. The domino pieces are falling. Fast.

The Deadly Disunity Of The Europeans

• In A Quota System You Do Not Kick Cans Down The Road, But People (Münchau)

Europe’s multiple crises share a common theme. Whether we are talking about banks, sovereign debt or, as now is the case, refugees, the EU finds it hard to act. What we have is a classic collective action problem, of the kind described by Mancur Olson, the political economist, in the 1960s. People have a common interest in acting but fail to do so because vested interests get in the way. Even the harrowing pictures of the dead young boy will not resolve the collective action problem. All it will do is to produce visible hyperactivity. The three crises share another common theme: each one of them is virtually intractable if you look at it from a micro perspective, from the vantage point of a Greek bank or Budapest East train station. But if you look at immigration from an EU-level perspective, the picture is much more nuanced.

The EU has 500m inhabitants. Setting aside refugees, net immigration — the difference between those coming into and those leaving the EU — was 539,000 in 2013, about 0.1 per cent of the total population. Net immigration was higher in 2010, when it stood at 750,000. The UN refugee agency (UNHCR) puts the number of refugees and migrants who crossed the Mediterranean at 300,000 between January and August, compared with 219,000 for the whole of 2014. If you extrapolate this year’s number to the whole of 2015, you get to around 450,000, an extra 230,000 people compared with last year. These numbers do not capture the whole story: many immigrants, from Syria in particular, use land routes. Net immigration this year may thus well end up being the highest in recent years, but still tiny compared with the EU’s total population.

Net immigration including refugees is clearly rising. Still, this is not an immigration crisis. It is a collective action crisis. Its solution would be straightforward in the presence of a central authority empowered to take decisions. But this is not how the EU works. It works through co-ordination and harmonisation — through fiscal rules, banking regulation and neighbourhood policies. But none of them prevented the crisis, and none of them helps solve it. The problem was never a lack of rules or policies. It was the simple fact that certain things in life cannot just be co-ordinated. Nor are member states big enough to act on their own — not even Germany. Angela Merkel is, for once, on the right side of the argument. But Germany does not have the capacity to absorb all the EU immigrants.

[..] A quota system is far too crude, and politically as unsustainable as fiscal transfers between countries. Such policies breed resentment, and ultimately fail. In a quota system you do not kick cans down the road, but people.

The real alternative, in the long run, is not between co-ordination and mutualisation, but between separation and mutualisation. Those who support further European integration will be in a position to make a powerful argument that only the EU is in a position to solve the crises. The debate will not be about a transfer of power from the capitals to Brussels. It will be about whether we empower the EU with tasks that nobody else can handle and whether we give it the necessary financial resources. I fear this is not going to happen for a long time — for two reasons. The less important one is that the likes of Mr Orban will be among those to take the decision. The deeper reason is that Europeans are not yet desperate enough to accept the Logic of Collective Action, the title of Olson’s 1965 book.

Lost.

• Hollande Readies Syria Air Strikes as Response to Refugee Crisis (Bloomberg)

France is preparing for air strikes in Syria as President Francois Hollande seeks ways both to stem a flood of refugees from the Middle East into Europe and grapple with the threat of terrorism. “I’ve asked the minister of defense to begin reconnaissance flights over Syria from tomorrow that would allow for strikes against the Islamic State,” Hollande said at a press conference in Paris on Monday. Hollande, who ruled out sending troops, said Syrian leader Bashar al-Assad is an impediment to peace in the country. Hollande is seeking a response to Europe’s biggest refugee crisis since World War II in tune with public opinion that remains largely hostile to a massive increase in immigration. German Chancellor Angela Merkel announced €6 billion to help the thousands of migrants pouring into the country.

Hollande said today that France will accept 24,000 refugees over two years. He estimates that there are 60,000 asylum seekers in France in 2015. France has warplanes in Abu Dhabi and at a Jordanian air force base. “These will be reconnaissance and intelligence flights,” Hollande said. “We want to know where the training and command sites are.” Hollande also called for “massive” aid to support camps in countries neighboring Syria so that refugees can stay as close as possible to home. “Let’s face reality,” he said. There are four million refugees in camps in countries such as Jordan and Turkey and “if we want to avoid an exodus, what we have to do is supply massive aid” so that “these people can stay as close as possible to the country from which they are fleeing.”

Is this what the empire of evil looks like?

• US Revamping Rebel Force Fighting ISIS in Syria (NY Times)

In an acknowledgment of severe shortcomings in its effort to create a force of moderate rebels to battle the Islamic State in Syria, the Pentagon is drawing up plans to significantly revamp the program by dropping larger numbers of fighters into safer zones as well as providing better intelligence and improving their combat skills. The proposed changes come after a Syrian affiliate of Al Qaeda attacked, in late July, many of the first 54 Syrian graduates of the military’s training program and the rebel unit they came from. A day before the attack, two leaders of the American-backed group and several of its fighters were captured. The encounter revealed several glaring deficiencies in the program, according to classified assessments: The rebels were ill-prepared for an enemy attack and were sent back into Syria in too small numbers.

They had no local support from the population and had poor intelligence about their foes. They returned to Syria during the Eid holiday, and many were allowed to go on leave to visit relatives, some in refugee camps in Turkey — and these movements likely tipped off adversaries to their mission. Others could not return because border crossings were closed. The classified options now circulating at senior levels of the Pentagon include enlarging the size of the groups of trained rebels sent back into Syria, shifting the location of the deployments to ensure local support, and improving intelligence provided to the fighters. No decisions have been made on specific proposals, according to four senior Defense Department and Obama administration officials briefed on the matter, who spoke on condition of anonymity to discuss confidential planning.

“As with any difficult endeavor, we expected setbacks and successes, and we must be realistic with those expectations,” Capt. Chris Connolly, a spokesman for the American military task force training the Syrian rebels, said. “We knew this mission was going to be difficult from the very beginning.” The Pentagon effort to salvage its flailing training program in Turkey and Jordan comes as the world is fixated on the plight of thousands of refugees seeking safety in Europe from strife in the Middle East, including many fleeing violence of the Syrian civil war and oppression in areas under the control of the Islamic State, also known as ISIS. Officials in Washington and European capitals acknowledge that halting this mass migration requires a comprehensive international effort to bring peace and stability to areas that those refugees are now fleeing.

Got to give them one thing: they’re impervious to shame, even embarrassment.

• Europe Seeks UN Blessing to Confront Human Smugglers in the Mediterranean (Lynch)

Straining to contain their worst migration crisis in generations, European powers have begun laying the groundwork for the passage of a U.N. Security Council resolution authorizing the boarding and interception of people-smuggling ships in the Mediterranean Sea. The effort, which is being led by Britain, is aimed at stemming the exodus of hundreds of thousands of Middle Eastern and African migrants and refugees seeking to reach Europe on rickety boats from Libya, a primary transit point on the illicit human smuggling trade. Britain is hoping to see the resolution adopted before world leaders arrive in New York later this month for the start of the U.N.’s annual General Assembly debate. It has begun circulating key elements of a resolution with key Security Council members.

The diplomatic push comes at a time when Britain and other European governments have come under criticism for doing too little to absorb the waves of migrants fleeing Syria, Libya, and other Middle Eastern and African countries. Thousands of migrants have died making the dangerous boat rides to European shores, and the photograph of a drowned toddler named Aylan Kurdi stirred worldwide outrage last week. One senior European ambassador said it was Europe’s worst crisis since World War II.

A few still do have a heart.

• ‘Stop Bombing, Start Resettling’: Former PM’s Plea To Australia (SMH)

Former Liberal premier Jeff Kennett has launched a blistering attack on the Federal Parliament saying the lack of national leadership is failing voters and the question of welcoming tens of thousands of refugees from Syria into Australia should not even be up for debate. Hailing Australia as a great country built on successive waves of immigration since 1788, Mr Kennett called on the federal government to quit plans to bomb Syria and spend the money on processing refugees for resettlement in Australia instead. “This country is a country that has always had its arms open wide. What I see this with this latest discussion, which is based on humanitarian grounds, is actually a wonderful opportunity for us to take over the next three years 50,000 people who are displaced of their freedoms,” he said.

He said instead of constantly looking to raise taxes, state and federal leaders should seize the opportunity of boosting the population with traditionally hard-working migrants as a different way of expanding the economy. “This shouldn’t be requiring much debate,” he said. The former Victorian leader said it was up to political leaders to stare down bigots who oppose any mass migration because of their religious beliefs or claims they not fleeing persecution. Liberal Senator Cory Bernardi is being branded an “embarrassment” for saying the toddler Aylan Kurdi, pictured drowned on a Turkish beach, was not a legitimate refugee.

“There will be always be people who oppose, and there are always going to be some bigots, but leadership rises above it and the Australian public is desperately crying out for leadership,” Mr Kennett said. “The Federal Parliament has failed, absolutely failed, the people of this country for a decade,” a passionate Mr Kennett told Fairfax Media.

A bit much throwing around of labels for my taste, but certainly worth a read.

• How Neocons Destabilized Europe (Robert Parry)

The refugee chaos that is now pushing deep into Europe – dramatized by gut-wrenching photos of Syrian toddler Aylan Kurdi whose body washed up on a beach in Turkey – started with the cavalier ambitions of American neocons and their liberal-interventionist sidekicks who planned to remake the Middle East and other parts of the world through “regime change.” Instead of the promised wonders of “democracy promotion” and “human rights,” what these “anti-realists” have accomplished is to spread death, destruction and destabilization across the Middle East and parts of Africa and now into Ukraine and the heart of Europe. Yet, since these neocon forces still control the Official Narrative, their explanations get top billing – such as that there hasn’t been enough “regime change.”

For instance, The Washington Post’s neocon editorial page editor Fred Hiatt on Monday blamed “realists” for the cascading catastrophes. Hiatt castigated them and President Barack Obama for not intervening more aggressively in Syria to depose President Bashar al-Assad, a longtime neocon target for “regime change.” But the truth is that this accelerating spread of human suffering can be traced back directly to the unchecked influence of the neocons and their liberal fellow-travelers who have resisted political compromise and, in the case of Syria, blocked any realistic efforts to work out a power-sharing agreement between Assad and his political opponents, those who are not terrorists.

We just never knew how developed Syria was before our ‘leaders’ instigated the fighting.

• Syrian Refugees In Hungary: ‘This Is The So-Called Developed Europe?’ (Guardian)

In a field 500 metres north of Hungary’s border with Serbia, Mouti, a 50-year-old oil engineer, points at the muddy field around him. Several hundred mostly Syrian refugees have been camped here overnight, surrounded by a thin blue circle of Hungarian policemen. They’ve slept in the cold, if they’ve slept at all. A man lies unconscious, roused only by a splash of water. Mothers rock their babies, looking miserable. “This is the so-called developed Europe?” asks Mouti. “It’s supposed to be different to the fucking Arab world.” After the euphoria of Germany welcoming a few thousand refugees from Hungary over the weekend, reality has bitten. Just as thousands left Hungary by its north-western border, thousands more refugees are arriving by its southern one.

And many of them are being forced to camp in this field, while the Hungarian authorities wait for space to free up in reception centres across the country. Mouti and his friend Fadi, an auditor, have come all the way from Deir Ezzor, a town contested by both Islamic State and the Syrian regime. “Both of them are bombing each other,” he says, “and we were stuck in the middle.” Twenty-five days later, they’ve arrived in the EU – but it doesn’t feel much better. They are surrounded by a line of policemen and their eight children are getting sick. Fadi’s brood includes an eight-month-old son, and two boys, aged four and five. They all have colds after being forced to stay here overnight.

“We’re coming from Daesh,” says Fadi, using the pejorative Arab term for Isis, “and this is how Europe treats us?” To underline the point, a group of protesting refugees have held up a sign that reads “Daesh = Hungary”, and some of them are chanting: “Freedom”. It’s just like the situation in Syria, smiles Shoukry, a steelworker from Aleppo. Even in such a depressing situation, there is time for a bit of gallows humour.

“David Cameron has highly developed skills in the art of following where he should be leading.” All European ‘leaders’ possess those skills.

• Cameron’s Offer Of 20,000 Syrian Refugees Over 5 Years Is Derisory (Ashdown)

David Cameron has highly developed skills in the art of following where he should be leading. And so, after being taught an excruciating lesson in compassion, decency and leadership by Angela Merkel, and sensing himself behind opinion again, he has produced a plan to take in 20,000 refugees – over five years. Nothing better shows the PM’s tone deafness to the urgency of the situation than to announce this headline figure, and then add that it will take five years to implement. Not only is this response calibrated more by political expediency than compassion, he has also indicated he believes the answer to the problem is more bombing. If the best part of two years of bombing with more than enough high explosive hasn’t solved this problem, how would Britain’s widow’s mite of a few extra bombs help?

Military strikes against Isis are failing, not because we do not have enough high explosive, but because we do not have a diplomatic strategy on Syria that would make sense of the military action. But let us first consider Cameron’s refugee “plan”. Not only is he offering a derisory number of places for refugees, but the prime minister chooses to help those who are already safely housed and fed in refugee camps outside Europe, rather than those who suffer (and die too) for want of these things inside Europe. Could it be that the toxic term here is not “suffering”, but “inside Europe”, because of the effect these words have on his backbench Europhobes? If so then – irony of ironies – the desperate and the destitute tramping towards us on the dusty roads of the Balkans are hostages to Cameron’s headbangers, just as he is.

And how will we measure the success of this plan? Not by how much it assuages the suffering of those fleeing from the Syrian battlefields, obviously – for it is in no way aimed at them. By its effect on reducing the number fleeing, then? But it won’t do that either. Cameron seems to think that seeking asylum is like going to the theatre: one only does it if one has a ticket for a seat Then consider this. Cameron tells us that not helping those in flimsy boats struggling to Europe will reduce the temptation for others to take this “lethal journey”. This is exactly the same inhuman logic that government ministers gave us last Christmas when they insisted (albeit at Europe’s behest) that not saving drowning refugees in the Mediterranean was the best way to stop others following them. Hundreds had to drown before we finally saw that this immoral policy didn’t work. Do we really have to learn that lesson again?

Angela’s in a tough spot now that she single-handedly created for herself. She’s right on one thing though: “What we are now experiencing is something that will change our country in the coming years.”

• Merkel Channels Bank Rescue as Germany Plans Refugee Fund (Bloomberg)

German Chancellor Angela Merkel announced plans to spend an extra €6 billion on refugees next year as thousands more migrants poured into the country over the weekend. Merkel said on Monday that Germany will add €3 billion to the 2016 federal budget and provide another €3 billion to states and municipalities to tackle Europe’s biggest refugee crisis since World War II. The chancellor said “it’s not entirely implausible” that Germany will spend an extra €10 billion in total next year to handle the influx. “We know that we were quick to save the banks,” Merkel said in Berlin. “I think we need to be just as quick in taking the necessary measures to ease the burden on the municipalities and states. What we are now experiencing is something that will change our country in the coming years.”

The plans for added funding comes as Germany and Austria spar with Hungary over the handling of refugees, with Hungary following a more hard-line approach to deter refugees. Austrian Chancellor Werner Faymann said on Sunday that his country will end emergency measures that allowed the passage of thousands of migrants over the weekend from Hungary without registering. “I can’t repeat our message to migrants often enough: ‘Please don’t come because we won’t let you through,’” Hungarian Prime Minister Viktor Orban said in Budapest on Monday. “New laws passed by parliament will change our border defense system. Illegal border crossing will automatically trigger imprisonment or expulsion.”

Juncker’s big plan: resettling 160,000 refugees. Germany’s reality: 100,000 refugees entered the country just in the past month.

• Hit By New Wave Of Refugees, Germany Warns EU Partners (Reuters)

Struggling to cope with record numbers of asylum seekers, Germany told its European partners on Monday they too must take in more refugees, as police in Hungary used pepper spray on desperate migrants who broke out of a reception center at the border. Chancellor Angela Merkel, speaking after a weekend in which 20,000 migrants entered Germany from Hungary by train, bus and on foot, described the influx as “breathtaking” and tried to reassure German citizens that the crisis was manageable. “I am happy that Germany has become a country that many people outside of Germany now associate with hope,” she said at a news conference in Berlin.

But she and her vice chancellor, Sigmar Gabriel, coupled their message of optimism with a warning to EU partners who have resisted a push from Berlin, Paris and Brussels to agree quotas for refugees flowing in mainly from Syria, Iraq and Afghanistan. “What isn’t acceptable in my view is that some people are saying this has nothing to do with them,” Merkel said. “This won’t work in the long run. There will be consequences although we don’t want that.” Gabriel said that if countries in eastern Europe and elsewhere continued to resist accepting their fair share of refugees, the bloc’s open border regime, known as Schengen, would be at risk. “This would be a dramatic political blow for Europe, but also a heavy economic blow, also for those countries that are saying they don’t want to help now,” he said.

[..] Only months after Europe narrowly averted a Greek exit from the euro zone, the refugee crisis has emerged as the bloc’s biggest challenge. European Commission President Jean-Claude Juncker is due to unveil new proposals on Wednesday on how to distribute refugees among member states. An EU source told Reuters that under his plan, Germany would take on more than 40,000 and France 30,000 of the 160,000 asylum seekers the Commission says need to be relocated from Italy, Greece and Hungary, the main entry points to the EU for refugees arriving by sea and land.

The 160,000 that Juncker wants to redistribute within the EU are just a fraction of the hundreds of thousands of refugees and economic migrants from Asia, Africa and the Middle East who have reached Europe this year on leaky boats across the Mediterranean or over land through the Balkan peninsula. Germany has announced it is letting Syrians seek asylum regardless of where they enter the EU, suspending normal rules and accelerating a flow of migrants north and west from the edges of the bloc. Just last month, more than 100,000 asylum seekers reached Germany, which is preparing for 800,000 this year, around 1% of its population, a move with little precedent for a large Western country.

Sweden expects fewer refugees this year than last? Good luck with that.

• Sweden’s PM Chides Europe’s Leaders as Refugee Crisis Deepens (Bloomberg)

Swedish Prime Minister Stefan Loefven said the rest of Europe needs to take more responsibility as his country and Germany continue to bear the heaviest burdens in absorbing refugees fleeing crisis. The European Union needs to replace today’s voluntary system with a permanent and mandatory redistribution mechanism to tackle refugee disasters, Loefven told reporters in Stockholm on Monday. The bloc should consider raising the United Nations quota for refugees it accepts to 100,000 from 20,000, he said. “We’re in the middle of an international refugee crisis,” he said. “We also have a European crisis, but I would say that Europe’s crisis isn’t a refugee crisis, it’s a responsibility crisis.” Loefven will discuss the proposals with German Chancellor Angela Merkel in Berlin on Tuesday.

The two are the biggest recipients in the EU of asylum seekers from Syria, accepting about 50%, according to Loefven. Together with three other EU nations, they have taken about 75% of all asylum requests. That’s not sustainable and needs to change, Loefven said. Changes are needed to the Dublin Regulation, which sets the criteria for dealing with asylum seekers, and new safe and legal ways are necessary to bring refugees into the EU, he said. The conflict in Syria, which erupted after the 2011 uprising against President Bashar al-Assad, has displaced more than 6 million people internally and sent more than 4 million registered refugees to other countries, according to the UN.

“Sweden is one of the few countries that has had, and will continue to show, solidarity in its refugee policy,” Loefven said. It’s concerning that there are still countries such as Hungary that are trying to escape their responsibility, he said. A combination of longer processing times, a lack of housing and jobs and stricter border controls in other EU countries is expected to lead to a drop in the number of asylum seekers to Sweden this year. About 74,000 are expected, compared with 81,000 in 2014. Costs are seen rising to about 17 billion kronor ($2 billion) this year and to 19.8 billion kronor in 2016 from about 13 billion kronor in 2014, the Swedish National Financial Management Authority said last week.

Haven’t seen any news of payments for refugee care from Brussels to Athens having been completed. Just lip service.

• At Least 10,000 Migrants To Be Ferried To Mainland Greece In Next 5 Days (AP)

Greece’s migration minister has said at least two-thirds of the estimated 15,000-18,000 refugees and economic migrants stranded in “miserable” conditions on the eastern Aegean island of Lesvos will be ferried to the mainland in the next five days. Giannis Mouzalas told state ERT1 TV extra ferries were laid on Monday to transport the migrants, while some ships will serve as temporary screening and reception centers. Lesvos bears the brunt of the refugee influx, with more than 1,000 arriving daily on frail boats from nearby Turkey. Most remain stuck there for days, sleeping outdoors until they can be identified, and then find berths on crowded ferries to the mainland. Greece’s caretaker government, appointed ahead of elections Sept. 20, has set the problem as its main priority, significantly improving its predecessors’ stumbling efforts to deal with the influx.

Oil just falls. Guessing at the reason is not helping.

• Oil Falls More Than 3% On Oversupply, China Equity Losses (Reuters)

Oil fell more than 3% on Monday, hit by weaker Chinese equities and record North Sea crude production data that added to global oversupply concerns. China’s main indexes closed down on Monday as investors sold shares in the aftermath of a four-day market holiday, during which further restrictions on futures trading were announced. “Oil is only taking its cues from China,” SEB chief commodity analyst Bjarne Schieldrop said. “The price is taking little notice of constructive data like stronger (European) equities, stronger base metals and last Friday’s fall in U.S. rig count,” he said. Oil has fallen almost 60% since June 2014 on a global supply glut, with prices seesawing in recent weeks as concerns about a slowing Chinese economy caused turmoil in global stock markets.

“For commodities, the key demand-side figure to care about is not China’s GDP growing at 7% instead of 9 or 10%, it is the manufacturing price index, which has been falling for more than 40 months in a row,” JBC Energy said. OPEC is producing close to record volumes to squeeze out competition, especially from U.S. shale producers, which have so far weathered the price plunges to keep pumping oil. Saudi Arabia is set to maintain output at around 10.2 million to 10.3 million barrels per day, near this summer’s record high, in the fourth quarter as rising refinery demand offsets lower local use for power, according to industry sources. “The focus is shifting back to the still-high oversupply,” Commerzbank senior oil analyst Carsten Fritsch said.

Peanuts.

• US Shale Oil Industry Hit By $30 Billion Outflows

US shale producers reported a cash outflow of more than $30bn in the first half of the year, in a sign of the challenges facing the US’s once-booming industry as the slump in oil prices begins to take effect. The shortfall points to a rise in bankruptcies and restructurings in the US shale oil industry, which has expanded rapidly in the past seven years but has never covered its capital expenditure from its cash flow. Capital spending by listed US independent oil and gas companies exceeded their cash from operations by about $32bn in the six months to June, approaching the deficit of $37.7bn reported for the whole of 2014, according to data from Factset, an information service.

US oil production fell in May and June, according to the US Energy Information Administration, and some analysts expect it to continue falling as financial constraints limit companies’ ability to drill and complete new wells. Companies have sold shares and assets and borrowed cash to increase production and add to their reserves. The aggregate net debt of US oil and gas production companies more than doubled from $81bn at the end of 2010 to $169bn by this June, according to Factset. Terry Marshall of Moody’s, the rating agency, said: “The capital markets have been so strong and so open for these companies that a lot of them were able to raise a lot of debt.” Capital markets have remained open for US oil and gas companies despite the crude price more than halving in the past year.

However, there are now signs that the flow of capital is slowing. US exploration and production companies sold $10.8bn of shares in the first quarter of the year, but that dropped to $3.7bn in the second quarter and under $1bn in July and August, according to Dealogic. Similarly, those companies were selling an average of $6.5bn worth of bonds every month in the first half of the year, but the total for July and August was just $1.7bn. The next hurdle facing many US oil companies is the resetting of their borrowing base: the valuation of their oil and gas reserves that banks use to determine how much they will lend.

Greece should never accept this, no matter what happens next.

• A Dutchman ‘In Control’ Of The Greek Government (Enikos)

Dutch commissar Maarten Verwey will be the head of the Task Force for Greece and will have direct access to the Prime Minister’s office, says the leading report in financial weekly Agora. The Greek government will be placed under the strict supervision of Brussels to ensure that all agreed reforms will be implemented, says the report. Verwey, the Director General of the European Commission, will head a 20-member Task Force, which will essentially write the bills for almost all areas of government policy, from corporate income tax and labour market policy to the health and welfare system.

“Verwey’s team” will have close cooperation with the troika and will prepare interim reports during the evaluation of the economy. It could also seek the assistance of the IMF, fulfilling therefore the will of the German side for the engagement of the Fund in the third memorandum. The paper says that indicative of the power entrusted on the Task Force is the fact that Verwey will have a direct line of communication with the Prime Minister’s office, in accordance with the wishes of Jean-Claude Juncker.

Perversity written large.

• Writing Down €4.7 Billion In Bonds May Cost Greece €49 Billion (Bloomberg)

Writing down €4.7 billion of privately held senior bonds to help fix Greek lenders may cost the nation €49 billion. Banks may only be able to bail in the privately held bonds if they do the same to state-guaranteed notes used as collateral for European Central Bank loans. That would potentially hand the Greek government a €49 billion obligation, even as it struggles to pay pensions and civil-service wages. Excluding the state-backed notes, also called phantom bonds, from a bail-in could lead to lawsuits from private investors. “One potential target for aggrieved private bondholders being bailed in would be the senior phantom bonds if they were not equally bailed in,” said Michael Doran, a partner at law firm White & Case.

“That creates a dilemma, as on its face, a bail-in of these bonds could trigger the sovereign guarantee, which would then leave the Greek state with a significant and perhaps unexpected liability.” Euro-area finance ministers have suggested bailing in senior bank bonds to help refinance lenders after Greece’s economic crisis spurred bad loans, deposit withdrawals and cash shortages. Policy makers have pledged to make as much as €25 billion available to support the recapitalization. Writing down the senior bonds as part of a bailout is a possible option following the completion of ECB stress tests and an asset-quality review next month. Alternatives for filling capital shortfalls include private offerings and European aid. The Greek government may also reach a deal that voids the guarantees and shields the ECB from losses.

China simply labels its recession a ‘transition’ or a ‘shift’… And the WSJ helps. Wanna bet the mill in the article would still be open if only there were buyers? China’s reality is it has overproduced and overinvested for years, and now it can no longer keep that up.

• China’s Shift Away From Industry Drains Life From a Steel Town (WSJ)

For as long as Deng Wanyin could remember, the sprawling steel mill in the outskirts of this city has been a part of his life. The 42-year-old forged steel pipes here, as his father had before him. He met his wife in the apartments the state-owned mill provided to house its workers. Their daughter was raised in the mill’s schools. One day in late March, notice came that the mill was shutting down. “When I heard the news, all I felt was an expanse of emptiness,” Mr. Deng said. “I never imagined that this would happen.” The closing of the Pangang Chengdu Steel & Vanadium Co. is leaving Mr. Deng on the sharp edge of China’s juddering economic slowdown that is unsettling global markets.

About 16,000 workers have been given buyouts, upending long-entrenched livelihoods centered on the mill, known locally as Panchenggang, after 57 years in operation. With the mill silent, the sound that dominates the area of faded shophouses and hulking apartment complexes these days is the din of crickets, rising and falling against Sichuan province’s lush greenery. The smog that used to blanket the area has thinned out, and the sharp odor of ammonia from nearby chemical factories, also closed, is gone. The uprooting of company towns is part of a painful transition as the heavy industries that for decades powered China’s rise fade amid falling demand and overinvestment. The government is trying to shift the giant economy to a new track built on consumer spending, services and technology-driven manufacturing.

Fears that the shift is proving trickier than Beijing can handle undermined the confidence of investors world-wide that China would soon re-emerge as a source of global growth. Growth in industrial production continued to sputter in July, falling to 6%, compared with more than 23% in the heyday of growth a decade ago, and the target of 7% GDP growth this year would be China’s slowest in about a quarter century.

Podemos must watch out, and speak much louder. It must show how much the government’s numbers are being manipulated, or it will lose badly.

• Thomas Piketty To Advise Spain’s Anti-Austerity Party Podemos (Guardian)

The French economist Thomas Piketty, famous for his controversial book on wealth and inequality, is to advise Spain’s anti-austerity party Podemos. The author of Capital in the Twenty-First Century has agreed to join an international committee of experts that will advise Podemos on its economic programme as the party prepares to fight its first general election in December. Piketty will work with the leftwing party on developing policies to combat inequality, the theme of his bestselling 2013 book, and on measures to democratise the eurozone, Podemos said in a statement on Monday. Frustration with economic crisis, austerity and corruption in high places has fed the rise of new Spanish parties such as Podemos, which translates as “we can” and the centrist Ciudadanos (“citizens”), which are challenging the ruling rightwing People’s party and the opposition Socialists.

Podemos, which was formed last year, and Ciudadanos performed strongly in local and regional elections in May, at the expense of the two traditional parties and particularly the People’s party. Recent polls, however, suggest that support for the new parties may have peaked as the economy improves. A poll last month showed the People’s party with a clear lead over its rivals in a fragmented political landscape, but far short of the majority needed to govern alone. It showed the People’s party with 28.2%, the Socialists on 24.9%, both up from the previous poll, while Podemos and Ciudadanos had lost ground, with 15.7% and 11.1% respectively.