Evros Archives - The Automatic Earth

China’s trade figures disappointed analyst expectations by a wide margin in October, reinforcing views that the world’s second-largest economy will likely have to do more to stimulate domestic demand given stubborn softness in overseas markets. While Beijing has already repeatedly cut interest rates and softened the exchange rate to prop up the economy, latest trade numbers suggest that a greater risk of a hard landing remains. October exports fell 6.9% from a year ago, dropping for a fourth month, while imports slipped 18.8%, leaving the country with a record high trade surplus of $61.64 billion, the General Administration of Customs said on Sunday.

Combined exports and imports fell 8.5% in the first 10 months of the year from the same period a year earlier, well below the full-year official target for growth of 6%. “We see that the trade will unlikely turn around the momentum in the near term, and the renminbi exchange rate will be under downward pressure especially as Fed signals to hike soon,” Commerzbank China economist Zhou Hao said. Last week, the Ministry of Commerce said the value of China’s exports this year was likely to stay similar to 2014 levels, while imports could drop sharply in the fourth quarter. For 2016, the ministry expects to see steady growth in combined exports and imports as policy measures to support the trade sector take effect.

China’s economy is facing headwinds from cooling exports and investment. President Xi Jingping has said it was possible for the country to maintain an annual growth of around 7% over the next five years, but that there were uncertainties. Chinese growth dipped to 6.9% in the third quarter, dropping below the 7% mark for the first time since the global financial crisis. In order to lower social financial costs for firms, the central bank cut interest rates in late October for the sixth time in less than a year, and again reduced the amount of cash that banks must set aside as reserves. It also guided the yuan into weaker territory against the dollar. The onshore yuan has weakened by more than 2% in 2015.

One of our favorite numbers. But note this: “In reality the ratio is probably much lower than the current reading of .47.”

• Marginal Productivity Of Chinese Debt Goes From Bad To Much Worse (Gavekal)

Taking the Chinese GDP statistics at face value (an increasingly big assumption these days) we point out a rather ominous scenario which seems to be developing in the productivity dynamics of Chinese debt-financed growth. Basically the amount of growth that each new unit of credit produces is plunging to levels not seen since 2009-2010 when the Chinese unleashed the largest GDP adjusted stimulus program in the world. As it stands now, each new unit of debt is buying less than .5 units of marginal growth, and that, again, is taking for granted the accuracy of the GDP stats (chart 1). In reality the ratio is probably much lower than the current reading of .47.

Is this sustainable? Of course not. As we have been saying for several years now, Chinese growth is going much lower as the economy rebalances from being an investment led model to a consumption led model. One of the signs we’re looking for to indicate that the transition is taking place is actually a slowing of new loan growth and improvement in the indicator in chart 1. We’ve got exactly the opposite so far, which is an indication of the Chinese pushing on the debt string even more to fuel growth rather than accepting slower growth still, but a rebalanced economy.

This, in a perverse way, probably increases the risk of the dreaded hard landing as the chances of a credit “event” rise even further.

All Chinese commodities companies are grossly overinvested and overleveraged.

• Global Investors Threatened as China Cement Maker Nears Default (Bloomberg)

International investors in Chinese corporate debt face fresh risks after a cement producer said it may default on onshore notes, which could lead to nonpayment on its dollar securities. China Shanshui Cement Group isn’t sure it can repay 2 billion yuan ($315 million) of local securities due Nov. 12 after a shareholder tussle stymied financing, it said in a filing Thursday. Failure to repay those notes would trigger a default on its $500 million 7.5% bonds due 2020, according to the statement. Global investors have been scarred by defaults from Chinese companies this year in industries including property and commodities as economic growth slows and anti-corruption investigations continue. Kaisa Group reneged on obligations in April amid a probe.

Coal trader Winsway Enterprises failed to pay interest on dollar bonds for a second time this year in October, and Hidili Industry International didn’t repay its dollar notes due Wednesday. “Recently, there have been more cases of Chinese commodities companies having trouble to repay debt,” said Raymond Chia, the head of fixed-income research for Asia ex-Japan at Schroder Investment Management Ltd. in Singapore. “But if a relatively healthy cement company ended up having problems, the sentiment to China’s commodity space will surely go down.” Shanshui has been mired in a shareholder fight for control since April amid President Xi Jinping’s call to cull weaker firms in industries grappling with overcapacity. Its largest shareholder Tianrui International has been trying to change Shanshui’s board.

Meanwhile its two other shareholders China National Building Material and Taiwan’s Asia Cement have announced they are considering the terms of a possible offer. Shanshui cited its “current cash position and the difficulties it faces in raising financing” in its filing Thursday. While the company has been seeking funding since June, all the financial institutions it contacted “have expressed concern in relation to the uncertainty of the management,” it said.

China’s overcapacity is bringing down global commodities.

• Troubled Tata Steel Demands 30% Price Reduction From Suppliers (Telegraph)

Tata Steel has been accused of “bully boy” tactics after demanding its suppliers slash their prices by 30pc as it attempts to pass on the cost of the steel crisis. The Indian-owned company has written to businesses in its supply chain telling them it requires an immediate 10pc price reduction on all purchases, and plans to increase the cuts to 30pc. The letter – which has been seen by the Telegraph – implies that any of its “valued suppliers” that fail to comply with the price cuts face being dropped. Demands contained in the letter emerged just days after Tata’s global parent company reported a £301m interim profit. The current crisis in Britain’s steel industry – which saw Tata axe 1,200 in Scunthorpe and Scotland last month, on top of a further 1,000 earlier in the year – was blamed for the company writing down the value of its UK assets by £866m.

In a letter signed by Lorraine Sawyer, procurement director of Tata Steel Long Products Europe, which makes up about a quarter of the company’s operations in Europe, the company spells out the difficulties it is currently facing. These include global over-capacity and declining steel prices. It adds that “UK-based steel manufacturers have been particularly challenged by their higher cost position driven by high energy prices and business rates…worsened by sterling’s appreciation”, and cites the closure of SSI’s plant at Teesside and Caparo Industries’ collapse as evidence of the depth of the crisis. Tata’s Long Steel unit faces “a difficult business situation”, the letter says, adding that to “ensure a long term sustainable business we have launched a transformation programme to improve our market performance and reduce our cost base”.

As a result, the business “will focus on reducing external spend. We cannot achieve this transformation without the support of our valued suppliers.” The letter adds: “To this end we are seeking a long-term price reduction of 30pc… on all purchases. As a first step we would appreciate an immediate price reduction of 10pc. “Supporting each other in these challenging times will enable us to further strengthen our relationship into the future. We look forward to having a long term partnership with you.” The letter then hints that suppliers who do not comply may be dropped from the company’s supply chain: “We greatly appreciate your support but also want to stress that we require contribution from all of our suppliers. “Should you – for any reason – be unable to support us in our efforts, we will need to fully consider other options.”

“..even if interest rates are at zero you’re still losing money and you have debt on top of it.”

• Welcome To The First Global Recession Created By Central Banks (FuW)

Charles Biderman, founder of the research firm TrimTabs, thinks the global slowdown will force the Federal Reserve to launch another stimulus program.

For more than a year, the Fed is trying to prepare the financial markets for a rate hike. What would that do to the credibility of the central bankers if they back off now and actually take a U-turn? Who says they have any credibility? The real problem is that the people who run the central banks are either economists or bankers. If you look at the record of global economists, they’ve been consistently wrong on the market and on the economy. At least in the United States, 95% of the economists surveyed have said at the start of each of the last five years that interest rates are going to end the year higher. Although they have been wrong each year, people keep listening to them. And when it comes to bankers, consider this: I went to Harvard Business school. The top students there went to firms like McKinsey, Boston Consulting or to the top Hedge Funds. So where did the graduates go who couldn’t get the top jobs? They went to the banks. So what you end up with is people just as greedy but not as smart.

The Fed already blinked at the September meeting. Why are they so hesitant to make a move? If the economy continues to slow down going into an election year, the Fed will be under tremendous pressure to do something. They will not let the economy and the stock market slump. That’s why I think there will be further easing.

Why are today’s stock markets so heavily focused on monetary policy? A simple way to look at market valuations is earnings divided by interest rates or cash flow divided by interest rates. So even if you raise interest rates only a quarter of a point that lowers the value of stocks. Also, once the Fed starts raising, it keeps raising. That decreases the attractiveness of flow trades into the stock market because now you can earn some money on your other assets. Right now, if you’re a corporation, your cash earns nothing. So you might as well use some of it to reduce your share count or to do a takeover. Both have been essential drivers of the bull market.

When it comes to the real economy, cheap central bank money seems not to be that beneficial. Governments are creating headwinds for growth. So the best thing central banks can do to promote growth is to cut interest rates to zero or even lower. That can work for a little while. But now it’s creating a global recession because of all the excess capacities. Even if it doesn’t cost to build a new plant or drill new wells, when demand dries up you’re not making a profit. So even if interest rates are at zero you’re still losing money and you have debt on top of it. That’s why I say: Welcome to the first global recession created by central banks.

Always when we see him, we expect Grant to switch into a Superman costume.

• Jim Grant: ‘The Fed Is An Irrelevant Anachronistic Relic (Zero Hedge)

Central bank’s experimental policies are only hurting America instead of leading the nation into financial prosperity, exclaims James Grant, editor of Grant’s Interest Rate Observer. “The Fed is a relic of the age of command and control. The Fed is an anachronism,” Grant tells Bloomberg TV in this excellent interview, “The Fed ought to get out of the business of masterminding ‘the American enterprise,’ what we call the U.S. economy.” Central bankers, Grant adds, by pressing rates to nothing, have given rise to this “very pleasant kind of inflation we call bull markets.” While bull markets are great insofar as they reflect what is actually going on, “they are very dangerous to the extent that they are the artificial creation of artificial interest rates.”

“We are in a regime of price administration. Price control is a policy that has failed for millenia. When prices are manipulated, manhandled, and otherwsise distorted, real decisions follow and the real decisions are distorted… there’s bricks, mortar, and human lives attached to these [interest rate decisions]… and that’s why they matter” “How do they know the funds rate ought to be zero?” “The world’s central bankers went to the same schools, talk the same language, have the same world view. They have shared conditions. They believe, for example, that an average of prices, which they believe they can calculate, must rise at two% a year unless the world fall into something they choose to call deflation.

They believe that they can see into the future. They believe that they have the knowledge and the dexterity to manipulate interest rates to the benefit of society. The central banks no more than the rest of us can see into the future. They are managed by human beings who do their best but who cannot – underscore – cannot see into the future and improve it before it happens. That’s their conceit. But it is not given to mankind to do such things. They try. They have every good intention. But they are appliers of an outdated scheme of command and control. They don’t know what they do.”

“What is wrong with these numbers? Just about everything.”

• Another Phony Payroll Jobs Number (Paul Craig Roberts)

The Bureau of Labor Statistics announced today that the US economy created 271,000 jobs in October, a number substantially in excess of the expected 175,000 to 190,000 jobs. The unexpected job gain has dropped the unemployment rate to 5%. These two numbers will be the focus of the financial media presstitutes. What is wrong with these numbers? Just about everything. First of all, 145,000 of the jobs, or 54%, are jobs arbitrarily added to the number by the birth-death model. The birth-death model provides an estimate of the net amount of unreported jobs lost to business closings and the unreported jobs created by new business openings. The model is based on a normally functioning economy unlike the one of the past seven years and thus overestimates the number of jobs from new business and underestimates the losses from closures.

If we eliminate the birth-death model’s contribution, new jobs were 126,000. Next, consider who got the 271,000 reported jobs. According to the Bureau of Labor Statistics, all of the new jobs plus some—378,000—went to those 55 years of age and older. However, males in the prime working age, 25 to 54 years of age, lost 119,000 jobs. What seems to have happened is that full time jobs were replaced with part time jobs for retirees. Multiple job holders increased by 109,000 in October, an indication that people who lost full time jobs had to take two or more part time jobs in order to make ends meet. Now assume the 271,000 reported jobs in October is the real number, and not 126,000 or less, where are those jobs?

According to the BLS not a single one is in manufacturing. The jobs are in personal services, mainly lowly paid jobs such as retail clerks, ambulatory health care service jobs, temporary help, and waitresses and bartenders. For example, the BLS reports 44,000 new retail trade jobs, a questionable number in light of sluggish real retail sales. Possibly what is happening is that stores are turning a smaller number of full time jobs into a larger number of part time jobs in order to avoid benefit costs associated with full time workers. The new reported jobs are essentially Third World type of jobs that do not produce sufficient income to form a household and do not produce exportable goods and services to help to bring down the large US trade deficit resulting from jobs offshoring.

The problem with the 5% unemployment rate is that it does not include any discouraged workers. When discouraged workers—those who have ceased looking for a job because there are no jobs to be found—are included the unemployment rate is about 23%. Another problem with the 5% number is that it suggests full employment. Yet the labor force participation rate remains at a low point. Normally during a real economic recovery, people enter the labor force and the participation rate rises. The bullion banks acting as agents of the Federal Reserve used the phony jobs number to launch another attack on gold and silver bullion, dumping uncovered shorts into the futures market. The strong jobs number provides cover for the naked shorts, because it implies an interest rate hike and movement out of bullion into interest bearing assets.

One passport already seized. Watch the California air resources board. They don’t fool around.

• Volkswagen Managers Afraid To Travel To US For Fear Of Prosecution (Reuters)

Volkswagen managers are worried about travelling to the US, a German newspaper reported on Saturday, saying US investigators have confiscated the passport of an employee who is there on a visit. Citing company sources, the Suddeutsche Zeitung said Volkswagen believes the investigators want to prevent the manager from evading questioning or criminal prosecution linked to the diesel emissions scandal. A spokesman for VW said: “Volkswagen employees are still travelling to the United States. Everything else is speculation.“ Volkswagen is under investigation in the US and could face penalties of up to $18bn after admitting it deliberately rigged emissions tests of diesel-powered vehicles.

Mary Nichols, head of the California air resources board, which is investigating VW, has criticised the carmaker’s handling of the scandal. Citing a person with knowledge of the matter, the paper said it was now unlikely that new VW chief executive Matthias Mueller would travel to the US in the second half of November as planned. “We need legal security here before he can fly to the United States,” the paper quoted a person from group management as saying. There is no official plan for VW’s new chief executive Matthias Mueller to travel to the US and VW has so far declined to comment when asked whether such a trip is likely.

Sure, let’s piss off the French…

• Germany Says It’s Testing Diesel Cars Of Foreign Automakers (Reuters)

Germany is subjecting diesel vehicles including those from foreign manufacturers to strict checks, its transport minister said, following Volkswagen’s latest disclosure that it gave false data on CO2 emissions. In a deepening scandal, Volkswagen on Tuesday said it had understated the fuel consumption and carbon dioxide emissions of about 800,000 vehicles sold in Europe. VW in September admitted that it had cheated on diesel emissions tests in the United States.

“We are currently carrying out strict checks on diesel vehicles from other manufacturers including foreign ones,” Transport Minister Alexander Dobrindt told the Bild daily in an interview published on Saturday. Dobrindt said the EU was working on tougher car emissions tests for the future, which would include tests on the road as well as in the lab. “The tests will therefore become more strict and will more closely resemble the normal driving behavior in road traffic,” he told the newspaper.

Shameless grifters. What the EU leadership stands for. All it stands for.

• How Juncker And Dijsselbloem Blocked European Anti-Tax Haven Laws (Spiegel)

In speeches and interviews, Juncker has always claimed that Luxembourg has in no way enriched itself “at the expense of its neighboring countries,” and especially not by encouraging tax avoidance. In everyday political life, however, Juncker’s people fought for precisely the kinds of corporate advantages their boss used such rich language to denounce. In order to attract as much corporate money as possible into the country, his officials played around with tax models like “hybrid financial instruments” and, especially, so-called “patent boxes.” Introduced in order to spur technological advancement, finance policy experts in Belgium, the Netherlands and Luxembourg led the pack in transforming tax advantages into an instrument allowing corporations to steer proceeds from patents or licenses to their Benelux subsidiaries in order to pay lower taxes there.

Under the system, national subsidiaries of large corporations in countries with higher corporate tax rates would pay large patent and licensing fees to subsidiaries in lower tax countries. The system ensured that money got pumped into the government coffers of the Benelux countries, but it also put other EU countries at a disadvantage, in addition to the majority of small- and middle-sized businesses for whom such preferential treatment wouldn’t even be considered. Representatives of the other EU member states knew very well what was going on. The German representative in the Working Group on Tax Questions, for example, filed a cable to Berlin in March 2013 in which he noted there had been repeated “doubts about the harmlessness” of a few of the tax models, “mostly having to do with the license box rules of LUX and NDL,” the abbreviations being references to Luxembourg and the Netherlands.

But nothing was done about it for years. Each time the Working Group on Tax Questions proposed changes, Luxembourg, Belgium and the Netherlands warded them off successfully. It’s no wonder, either, given that representatives of the Benelux countries regularly coordinated their decisions in advance at their own meetings. Working in close collaboration, Luxembourg and the Netherlands refused to reveal information about tax rulings for major corporations as far back as 2010, four years prior to the LuxLeaks scandal. The new revelations are highly sensitive. It’s not just European Commission President Juncker whose past as the leader of the tax-haven Luxembourg is catching up to him. Another important man at the top of an EU institution also now has some uncomfortable questions to answer: Dutch Finance Minister Jeroen Dijsselbloem. Even after ascending to his current position as head of the Euro Group, his country continued to block every call for change.

“Her natural caution has given rise to a German neologism, merkeln (“to merkel”, or put off big decisions)..”

• The Indispensable European (Economist)

Look around Europe, and one leader stands above all the rest: Angela Merkel. In France François Hollande has given up the pretence that his country leads the continent (see Charlemagne). David Cameron, triumphantly re-elected, is turning Britain into little England. Matteo Renzi is preoccupied with Italy’s comatose economy. By contrast, in her ten years in office, Mrs Merkel has grown taller with every upheaval. In the debt crisis, she began as a ditherer but in the end held the euro zone together; over Ukraine, she corralled Europeans into imposing sanctions on Russia (its president, Vladimir Putin, thinks she is the only European leader worth talking to); and over migration she has boldly upheld European values, almost alone in her commitment to welcoming refugees.

It has become fashionable to see this as a progression from prudence and predominance to rashness and calamity. Critics assert that, with her welcoming attitude to asylum-seekers, Mrs Merkel has caused a flood that will both wreck Europe and, long before, also bring about her own political demise. Both arguments are wrong, as well as profoundly unfair. Mrs Merkel is more formidable than many assume. And that is just as well: given the European Union’s many challenges, she is more than ever the indispensable European. Mrs Merkel’s predominance in part reflects the importance of Germany—the EU’s largest economy and its mightiest exporter, with sound public finances and historically low unemployment. She is also the longest-serving leader in the EU.

Her personal qualities count for much, too. She has defended Germany’s interests without losing sight of Europe’s; she has risked German money to save the euro, while keeping sceptical Germans onside; and she has earned the respect of her fellow leaders even after bruising fights with them. Most impressively (and alone among centre-right leaders in Europe), she has done this without pandering to anti-EU and anti-immigrant populists. For all the EU’s flaws, she does not treat it as a punchbag, but rather as a pillar of peace and prosperity. Mrs Merkel is far from perfect. She is not given to great oratory or grand visions. She can be both a political chameleon who adopts left-wing policies to occupy the centre-ground, and a scorpion who quietly eliminates potential rivals.

Her natural caution has given rise to a German neologism, merkeln (“to merkel”, or put off big decisions). Her timidity in handling the euro’s woes deepened the crisis unnecessarily; she has spurned the risk-sharing that the euro area needs to thrive. Ironically it is boldness, not timidity, that has brought Mrs Merkel the greatest challenge of her time in office. Her staunch refusal to place an upper limit on the number of refugees that Germany can absorb has caused growing consternation at home and criticism abroad. As German municipalities protest, her political allies are denouncing her and eastern European countries are accusing her of “moral imperialism”. With Willkommenskultur fading, there is even talk of her losing power.

Already broken. We just don’t notice yet.

• The German Machine Is Breaking Down (Boston Globe)

Rarely have the fortunes of a major European nation changed so quickly as Germany’s. Far from being a driver of the European policy process, a role it had just settled into, Germany now finds itself driven by events, mainly the refugee crisis. This turn will not only have a significant impact on Germany’s ability to manage its own affairs but is also bound to have global consequences. If Germans have proved particularly adept at one skill, it has been what can broadly be described as complexity management. That is why, for example, German policy makers felt that they could take it upon themselves to launch a radical shift toward renewable energy, even though that strategy met with near disbelief in many quarters outside the country.

Meeting that mega-sized energy transformation challenge alone basically required an “all in” effort on behalf of policy makers, industry, and society at large. Despite the daunting challenges, Germans by and large felt optimistic about their collective ability to get it done. Now, on the eve of the COP21 climate talks in Paris, in the midst of the refugee crisis, one can’t be so sure any more that Germany can stay the course. Merely coping with the tremendous refugee inflow has quickly become an all-absorbing effort. All of a sudden, the ability of public authorities and the private sector to get much else done is very limited. Germany’s civil servants, skilled and efficient as they generally are, are plainly exhausted. That exhaustion is felt at the local, state, and federal levels.

Just how profoundly the policy landscape in Germany has changed reveals itself perhaps most starkly if one looks at the members of Chancellor Angela Merkel’s CDU party in the German Parliament. Many are basically speechless, if not incensed. They believe, with good reason, that Germany was already facing many serious policy challenges, from the eurozone crisis to improving the integration of young immigrants that were already in the country. Those problems now seem a mere pittance compared to dealing with the vast inflow of refugees. It has been a rude awakening for a country that thought itself so in control of its destiny.

Amidst all that, Volkswagen’s diesel scandal doesn’t help. Perceptions matter a great deal, and the fallout is bound to have an impact on Germany’s export industries, at least in terms of reputation. In addition, markedly reduced tax payments from VW and its suppliers, whether owing to losses or declining sales, reduce the fiscal space of state and local governments at an inopportune time. Where does all of this leave us? It would be, of course, completely inappropriate to use the refugee problem as an explanation for Germany’s — and Europe’s — present troubles. It is much more appropriate to argue that the massive wave of refugees simply exposed many of the cracks that had already shown up in the European edifice.

Everyone flaunts EU laws as they see fit. It’s a free for all.

• Germany Defies EU as Lawmakers Spurn Deposit-Insurance Plan (Bloomberg)

Germany’s dispute with Brussels over the pace of unification in the euro-area banking industry escalated as the country’s parliament called on Chancellor Angela Merkel to resist a proposed common deposit-insurance plan. Lawmakers in the Bundestag, Germany’s lower house of parliament, approved a resolution late on Nov. 5 that urges the government not to agree to the deposit-insurance initiative put forward by EC President Jean-Claude Juncker. While the resolution is non-binding, it would be very difficult politically for Merkel’s coalition to disregard it. Juncker announced the plan in his state-of-the-union address on Sept. 9, promising a “legislative proposal on the first steps” by year-end. German Finance Minister Wolfgang Schaeuble signaled his opposition days later, insisting that a common deposit-guarantee system would have to wait until financial-stability measures already on the books, such as common bank resolution rules, were fully implemented.

“Half-baked proposals that make German savers liable for other countries” make no sense, said Manfred Zoellmer, a member of the Social Democratic Party, part of Merkel’s ruling coalition. “Germany has done its homework; we’re well placed in this respect,” he said. “Other countries have to do their homework first. Only then can we talk about further steps.” Antje Tillmann, the lead lawmaker in the Bundestag’s Finance Committee for Merkel’s Christian Democratic Union, said an existing EU directive on deposit guarantee schemes, on the books since mid-2014, should be properly transposed into national law by all of the bloc’s member states before further measures are considered.

The directive “was only transposed by half of the countries,” she said. “Against this background, the commission’s proposal comes at the wrong time. We should first implement what has already been agreed. Diligence should come before speed.” Juncker used a speech in Germany before the vote to play down the impact of his proposal. Speaking to an audience of German cooperative bankers, he said it doesn’t involve full risk-sharing between the euro-zone countries, something the German government has been wary of throughout the creation of Europe’s banking union.

Because they can.

• Germany Spied on Friends and Vatican (Spiegel)

Three weeks ago, news emerged that Germany’s foreign intelligence service, the Bundesnachrichtendienst (BND), had systematically spied on friends and allies around the world. In many of those instances, the BND had been doing so of its own accord and not at the request of the NSA. The BND came under heavy criticism earlier this year after news emerged that it had assisted the NSA in spying on European institutions, companies and even Germans using dubious selector data. SPIEGEL has since learned from sources that the spying went further than previously reported. Since October’s revelations, it has emerged that the BND spied on the United States Department of the Interior and the interior ministries of EU member states including Poland, Austria, Denmark and Croatia.

The search terms used by the BND in its espionage also included communications lines belonging to US diplomatic outposts in Brussels and the United Nations in New York. The list even included the US State Department’s hotline for travel warnings. The German intelligence service’s interest wasn’t restricted to state institutions either: It also spied on non-governmental organizations like Care International, Oxfam and the International Committee of the Red Cross in Geneva. In Germany, the BND’s own selector lists included numerous foreign embassies and consulates. The e-mail addresses, telephone numbers and fax numbers of the diplomatic representations of the United States, France, Great Britain, Sweden, Portugal, Greece, Spain, Italy, Austria, Switzerland and even the Vatican were all monitored in this way.

Diplomatic facilities are not covered under Article 10 of Germany’s constitution, the Basic Law, which protects German telecommunications participants from such surveillance. The initial revelations came after Chancellor Angela Merkel’s Chancellery, which is in charge of overseeing Germany’s intelligence agencies, informed the Bundestag’s Parliamentary Control Panel, which is responsible for applying checks and balances to intelligence efforts, in mid-October that the BND had been surveilling the institutions of numerous European countries and other partners for many years. In October 2013, Chancellor Angela Merkel condemned spying on her mobile phone by saying, “Spying among friends? That’s just not done.” Apparently these words didn’t apply to the BND.

2013.

• A Nation Of Immigrants (MarketWatch)

As America becomes more diverse, that is being reflected in the home countries of those choosing to become American citizens. Nearly 800,000 people decided to become American citizens in the 12 months that ended Sept. 30, 2013 — and more than a third of them came from Asia. Asians comprised the biggest group of new Americans by region, according to recent data from the Department of Homeland Security, edging out those from North America, in which DHS includes those from Central America and the Caribbean. Mexicans remain the single largest group of foreigners who were naturalized as citizens. But by state they are the biggest group in only 24. Among the remaining 26 states plus the District of Columbia, 10 other nationalities claim the top spot, as this map shows.

In nine states, Indians made up the biggest group of naturalized citizens. Those from the Dominican Republic, who nationwide topped those from China for the first time in at least a decade, are the biggest group in five states, the DHS data show. One of those states is New Jersey. For two years running, Dominicans have made up the biggest group of naturalizations each year, narrowly exceeding the number of Indians. DHS counts 779,929 people who were naturalized across the U.S. in the 2013 fiscal year, up 3% from a year earlier but 25% fewer than the record 1,046,539 who were naturalized in the fiscal year that ended Sept. 30, 2008. Asians were 275,700 of them, followed by the 271,807 from North America, Central America and the Caribbean. Europeans, the biggest source of the immigration waves of a century ago, were 80,333 of the year’s naturalizations. By country, the biggest groups after Mexico are India, Philippines, Dominican Republic and China.

German soldiers patrolling Greek borders? Don’t think so.

• EU’s Tusk Urges Germany To Help Secure European Borders (Reuters)

Germany needs to be tougher in the refugee crisis and do more to help secure Europe’s external borders, European Council President Donald Tusk said ahead of a meeting with Chancellor Angela Merkel on Sunday. While Tusk praised Germany’s leadership role as the most liberal and tolerant in European history, he urged Berlin to do more to get the current situation under control. “Leadership responsibility also means securing Europe’s external borders together with other member states,” Tusk told Die Welt am Sonntag newspaper. “I understand why due to historical reasons, Germany may have difficulty setting up a strict regime on its borders.

But for Germany, European leadership responsibility also means controlling Europe’s external borders if necessary energetically in a pan-European unit.” Tusk, a former Polish prime minister, has repeatedly stressed the urgency of tightening Europe’s borders, while Merkel has pushed for states to show “solidarity” and share responsibilities for refugees. In October, Tusk rebuked fellow European leaders by calling arguments over how to accommodate refugees “naive” as long as Europe fails to stop them surging over its borders. Tusk is due to dine with Merkel on Sunday in Berlin ahead of an EU-Africa summit in Malta on Wednesday and EU leaders meeting on refugees on Thursday.

Evil organization.

• Frontex To Deploy Forces On Greek-Albanian Border (AP)

The European Union border protection agency Frontex says it will deploy forces along Greece’s border with neighboring Albania. Frontex head Fabrice Leggeri on Friday told Albanian television station Top Channel the agency wants to prevent migrants from attempting to reach Western Europe by traveling through Albania. That route isn’t used at the moment by the large number of people fleeing conflict and poverty in the Middle East, Africa and Asia. Tirana says, however, it has made preparations to shelter refugees should they begin arriving during the winter. Leggeri said there was no plan for a camp in Albania as “that could be a burden on the countries in the region and it is not in line with the union’s decisions for the distribution of the emigrants from Greece to the other EU countries.”

As I said before: the people should open that fence, not wait for Athens OR Brussels.

• Athens May Mull Opening Evros Fence As Part Of EU Deal (Kath.)

Greek authorities have ruled out, again, the possibility of joint sea patrols with Turkey in the Aegean but have indicated, for the first time, that they would be willing to consider opening the fence on the Evros border with the neighboring country if a broad agreement with European Union members could be reached. Speaking to the semi-state Athens-Macedonian News Agency on Saturday, Citizens’ Protection Minister Nikos Toskas indicated that Athens will not engage in any further discussion on the idea of common sea patrols. “This matter has closed,” he said. “There is no chance of joint patrols taking place. What can happen is coordination in the sea or whatever other borders, but each side has to be responsible for its own territory, its own territorial waters.”

Athens is opposed to the idea of joining forces with Turkey to patrol the Aegean in order to deter human trafficking gangs from sending refugees across to eastern Aegean islands because Ankara disputes Greece’s territorial rights in the sea separating the two countries. “We are a sovereign state and we will not try to solve one problem by creating another bigger one,” said Toskas. However, the minister suggested that the Greek government would be willing to consider opening a safe passage for refugees through the fence on the Evros border in northeastern Greece if there is an agreement with Turkey, Bulgaria and the EU. “We can’t just open everything when there is a danger that everything will close in Europe,” said Toskas in reference to other eastern and central European countries installing fences at their borders. “Evros is not just the 12-kilometer fence on its land border with Turkey, there is also a 140-kilometer river,” added the minister, who visited Alexandroupoli in northeastern Greece on Saturday.

The EU has already died on its own shores.

• Humanity Is Laid Bare On The Shores Of Europe (Giles Duley)

In mid-October I arrive in Skala Sikamineas on the north coast of the Greek island of Lesbos. I am here as part of a long-term project for the UN High Commissioner for Refugees (UNHCR), documenting the refugee crisis across Europe and the Middle East. For more than a decade I have documented the effects of conflict and humanitarian disaster across the world, and much of that work has been in the countries from which these people now flee. From Afghanistan to South Sudan, in the past years I have seen growing instability across the globe. I understand the fear that is driving people to leave their homes. I thought I had seen it all, but I have never been so overwhelmed as by the human drama unfolding on the beaches of Lesbos. In its sheer scale, it is hard to comprehend; the lack of response impossible to explain or excuse.

The events of the past few years are unprecedented in size and scope. Not since the second world war have so many people been on the move. The UNHCR estimates there are more than 60 million forcibly displaced people worldwide, with over 4 million Syrians alone leaving their war-torn country to seek safety in neighbouring countries and Europe. On Lesbos, I have watched thousands land, fleeing wars in Afghanistan, Syria and Iraq. Again and again they say to me: “We thought we would die on that boat, but at least there was some chance; what we left behind was certain death.” On landing, men break down into tears, women stand lost in visible shock, children cry hysterically. The noise and chaos is deafening; humanity is laid bare on the shores of Europe and the response from politicians is a shambles.

It is volunteers who hold this frontline; often taking unpaid leave from work, bringing their own equipment and living in whatever accommodation they can find; a nurse from Palestine, a doctor from Israel, lifeguards from Barcelona; from Bolton to Oslo, everyday people are making a difference. When survivors, upon landing, shake your hand and say “thank you”, I turn ashamed, for they have nothing to thank us for. If this were ever to be my family seeking safety, I hope the world would treat them better. We can argue about the root causes and possible solutions; we can discuss the difference between refugees, asylum seekers and migrants; we can blame traffickers and smugglers. But the simple truth is that men, women and children are suffering terribly and dying on the coasts of Europe, and for the sake of humanity alone we must help them, not turn our backs.

[..] Today, 3 November, has been one of the busiest on record for refugees arriving, and despite the dark, boats are still landing. Estimates put the figure at more than 7,000. Two men and two children drowned. The camps are full, the volunteers and agencies overwhelmed. Families are sleeping wherever they can. An Afghan father with a baby in his arms asks for somewhere to sleep. He offers to pay three times the price in a hotel, even just for his wife and baby. When it’s explained there is nowhere left and no blankets, he says: “Touch me, am I not human too?” This is Europe, this is today.

Europe Will Never Be The Same. Neither Will The World.

Nov 022015

November 2, 2015 Posted by Raúl Ilargi Meijer at 10:08 am Finance Tagged with: babies, change, drowning, EU, Europe, Evros, fear, human rights, humanity, Merkel, refugees, wealth 13 Responses »

RLOppenheimer New flag for EU 2015

To reiterate: People are genetically biased against change, because change means potential danger. People are also genetically biased against acknowledging this bias, because they wish to see themselves as being able to cope with both change and danger. Put together, this means that when changes come, people are largely unprepared or underprepared.

Take this beyond the bias of the individual, and apply it to that of the group (s)he belongs to, the vantage point of a society, and you find the bias multiplies and becomes self-confirming. That is, the members of the group reinforce each other’s bias. When change comes in small and gradual steps, as it mostly does, this can be said to work relatively well. When it comes in large and sudden steps, trouble ensues.

This little bit of psychology 101 may seem redundant, but it is indispensable if we wish it to recognize the implications of Europe -and the entire world with it, in its slipstream- having already entered a period of change so profound it is impossible to predict what the impact will be. We can do a lot better at this than we do today, where so far the drivers of change, and indeed the changes themselves, are ignored and/or denied.

This ignorance and denial threatens to lead to a needless increase in nationalism, fascism, violence, misery, death and warfare. If we were to acknowledge that the change is inevitable, and prepare ourselves accordingly, much of this could be avoided.

There are two main engines of change that have started to transform the Europe we think we know. First, a mass migration spearheaded by the flight of refugees from regions in the world which Europeans have actively helped descend into lethal chaos. Second, an economic downturn the likes of which hasn’t been seen in 80 years or so (think Kondratieff cycle).

Negative ideas about refugees are already shaping everyday opinion and politics in many places, and this will be greatly exacerbated by the enormous economic depression that for now remains largely hidden behind desperate sleight-of-hands enacted by central bankers, politicians and media.

People, first in Europe, then globally, will need to learn to share what they have, and do with much less. This is not optional. The refugees won’t stop coming, and neither will the depression. It would be much better if people were prepared for this by those same central bankers, politicians and media, but the opposite is happening.

It’s not only individual people who are biased against change, societies are too, and that means so are those who ‘lead’ these societies. They are all motivated, consciously or not, to resist change, because their positions and their powers depend on things remaining -largely- the same.

‘Leaders’ in Brussels and various European capitals still operate on the assumption that the refugee stream is a fleeting phenomenon they can and must stop. In a sort of positive feedback loop with their populations, this idea is continuously reinforced.

This leads to today’s reality in which at least one baby drowns every single day (and more in the past few days) off the shores of Greece, on Europe’s borders, and easily ten times as many members of their families. Moreover, the count is accelerating fast. Weather forecasts for the coming week call for Beaufort 7 winds.

There’s no society, no civilization that allows such atrocities to happen, and is not subsequently down for the count, and bound to dissolve, crumble and disappear. Societies all need common values, based on minimum levels of humanity and compassion, just to survive. And they need a whole lot more if they wish to flourish. No such values, as we see on a daily basis, exist in Europe today.

And that means it has no future – at least not in its present EU structure. It doesn’t get simpler than that. Denied and ignored as the simple fact may have been from the start, it was always clear that the European Union, if it failed to solidly unify the continent, risked becoming a force for division. And it looks as if the first real crisis the union faces will be enough to generate that division. There’s no union in sight other than in name.

Scores of people still hail Angela Merkel for her role in the refugee crisis, but they should think again. Merkel demanded the protagonist role for herself and Germany in setting if not dictating the conditions in the Greek debt negotiations over the first half of 2015, but she’s nowhere to be seen in a leading role now.

Merkel, true, has opened German doors to refugees, but she has utterly failed in expanding any such policy to the EU as a whole. And since she’s the only recognized leader in the entire union, leaving people like Hollande and Juncker far behind, she must acknowledge responsibility if things go wrong. Being a leader doesn’t mean you get to cherry-pick your challenges, it’s a package deal. Merkel cannot today act as German leader only.

But as fast increasing numbers of refugees and their children are drowning in the Aegean, in an act of supreme cynicism Merkel last week went to China to sell Volkswagens and weapons, as well to talk about… human rights. That is to say, the human rights of Chinese people. Not those of the refugees making their way to Europe, who apparently don’t even have the right to safe passage.

It’s that safe passage that must be Europe’s first and main concern right now, not how to stop people from coming. There are many voices clamoring for the ‘Evros fence’, built by Greece three years ago on a stretch of land on its border with Turkey, to be opened, so the drownings stop.

This would seem to be a good first step to halt would should by now be labeled a refugee disaster, rather than crisis. But it’s a step that could have been taken months ago, and the fact that it hasn’t even after Merkel visited Turkey recently, doesn’t bode well. Tsipras is set to visit Turkey this week in the wake of Erdogan’s election victory yesterday, but Tsipras may not get the green light from Berlin to tear down the fence.

The best thing would perhaps be for ordinary people to organize themselves into a large group, 10,000+, travel to Evros, and tear down the fence themselves, rather than wait for politicians to do it. Perhaps the time to rely on others, politicians or otherwise, to do things, has passed.

The world has seen mass migrations before, numerous times, and Europe sure has had its share. The manner is which these migrations take place typically depends to a large extent on people’s human values and their willingness to share their wealth. What’s happening with Syrian refugees today bears some eery resemblances to the boats carrying Jewish refugees prior to WWII that were refused in many ports. Let’s not go there again.

Refugees almost always make a positive contribution to the country they resettle in, both economically and in other ways. We know that, just like we know many other things. But that doesn’t lead our reactions, fear does. And the more wealth people have, the more they seem to fear losing it.

I’ve quoted before how the German federal police warned Merkel at least 8 months ago that a million refugees would be at the country’s doorstep. And that nothing was done with this knowledge for about half a year, leaving Germany woefully unprepared when the warning turned out to be correct.

UN Geneva Director General Michael Moller puts the warning even further into the past; he says EU leaders were told about it at least two years ago.

Refugee Crisis Was Not Unexpected, Top UN Official Says

Director-General of the United Nations office in Geneva, Denmark’s Michael Moller, expresses optimism that the agency’s sustainable development goals (SDGs) will help toward ending extreme poverty but he has no illusions about the refugee crisis[..]

“The crisis we have today, we knew it was going to happen. The leaders of Europe were told it was going to happen at least two years ago. So a little prevention and a little preparation in terms of the narrative to their voters would have gone a long way.”

“This very negative, xenophobic and frankly racist narrative that we’re seeing in many countries, including my own country – I don’t recognize my own country – is unacceptable [..] one of the things that I find very puzzling is that there’s some sort of global amnesia going on. In the early 80s we had pretty much the same problem in Southeast Asia, with much bigger numbers of boat people.

It took a while and then someone decided we must deal with it in a more rational way and they came up with a plan of action which was the product of an international conference where international solidarity kicked in in a much broader way than now. Then we put in place a whole series of measures in a way that minimized the pain and over seven years we resettled 2.5 million people. I don’t see why we can’t take a page or two or three out of that book. To me what’s happening isn’t a European problem, it’s an international problem.

[Washington] are evolving as well. First of all, the number [of refugees the US would accept] was 10,000 but now they’ve upped it to 100,000. I’ve talked to some of the politicians.

[..] looking at this crisis as an isolated incident doesn’t make any sense whatsoever. We are going to have more of these things and a lot worse. The moment climate refugee problems kick in we are going to be in real trouble, unless we sit down globally and figure out structures and ways to deal with this in the future. Not to reinvent the wheel every damn time that happens, but to rethink completely the humanitarian system, because I guarantee you that it will happen again.

The refugee disaster is only the first step in a long and multi-pronged process of profound change in the lives of all citizens of -formerly- rich countries. And if we collectively screw up step 1 as badly as we have and still do, what’s going to happen when our economies fall to pieces? When our alleged ‘financial security’ crumbles, our pensions, our benefits?

Are we going to blame it all on the refugees, and vote in right wing simpletons? Too many of us undoubtedly will. Whether there’s enough decency to counter that is a toss-up. What is not is that the numbers of refugees will keep rising at the same time that our economies keep sinking.

It’s up to us, wherever we live in the world, to find the best way to deal with it. We have a choice in how we react to these developments, not in whether they happen or not.

Debt Rattle October 31 2015

Oct 312015

October 31, 2015 Posted by Raúl Ilargi Meijer at 10:00 am Finance Tagged with: China, drowning, Evros, Fed, refugees, safe passage, steel, subprime, Tsipras, VW 3 Responses »

Louise Rosskam General store in Lincoln, Vermont 1940

• US on Road to Third World (Paul Craig Roberts)

• Janet Yellen Just Got Some Pretty Bad News (CNBC)

• Fed’s Updated Model of Economy Suggests It’s Time to Raise Rates (Bloomberg)

• China Has Created A Steel Monster And Now Must Tame It (Reuters)

• VW Sticks to $24.2 Billion China Spending Plan Amid Cost Cuts (Bloomberg)

• Chevron to Cut Up to 7,000 Jobs (WSJ)

• Saudi Arabia Credit Rating Cut by S&P After Oil Prices Sink (Bloomberg)

• Swiss Probe Banks to Gauge Exposure to Petrobras Scandal (Bloomberg)

• Largest US Banks Face $120 Billion Shortfall Under New Rule (Reuters)

• Portugal Risks Becoming ‘Ungovernable’: President (Telegraph)

• Subprime Mortgages Make Surprise Comeback In The UK (Guardian)

• Greek PM Tsipras Says Shamed By Europe’s Handling Of Refugee Crisis (Reuters)

• Greece Says 22 Refugees Drown Off Aegean Islands, 144 Rescued (Reuters)

• Tsipras: Aegean Waves Wash Up Dead Children, And Europe’s Very Civilization (AP)

• Tsipras Blames Migrant Flows On Western Military Action In Middle East (AP)

• The Next Wave: Afghans Flee To Europe in Droves (Spiegel)

• Refugee Crisis: Germans Restrict Entry Points From Austria (BBC)

How to gut a society.

• US on Road to Third World (Paul Craig Roberts)

On January 6, 2004, Senator Charles Schumer and I challenged the erroneous idea that jobs offshoring was free trade in a New York Times op-ed. Our article so astounded economists that within a few days Schumer and I were summoned to a Brookings Institution conference in Washington, DC, to explain our heresy. In the nationally televised conference, I declared that the consequence of jobs offshoring would be that the US would be a Third World country in 20 years. That was 11 years ago, and the US is on course to descend to Third World status before the remaining nine years of my prediction have expired. The evidence is everywhere. In September the US Bureau of the Census released its report on US household income by quintile. Every quintile, as well as the top 5%, has experienced a decline in real household income since their peaks.

[..] Only the top One Percent or less (mainly the 0.1%) has experienced growth in income and wealth. The Census Bureau uses official measures of inflation to arrive at real income. These measures are understated. If more accurate measures of inflation are used (such as those available from shadowstats.com), the declines in real household income are larger and have been declining for a longer period. Some measures show real median annual household income below levels of the late 1960s and early 1970s. Note that these declines have occurred during an alleged six-year economic recovery from 2009 to the current time, and during a period when the labor force was shrinking due to a sustained decline in the labor force participation rate. On April 3, 2015 the US Bureau of Labor Statistics announced that 93,175,000 Americans of working age are not in the work force, a historical record.

Normally, an economic recovery is marked by a rise in the labor force participation rate. John Williams reports that when discouraged workers are included among the measure of the unemployed, the US unemployment rate is currently 23%, not the 5.2% reported figure. In a recently released report, the Social Security Administration provides annual income data on an individual basis. Are you ready for this? In 2014 38% of all American workers made less than $20,000; 51% made less than $30,000; 63% made less than $40,000; and 72% made less than $50,000. The scarcity of jobs and the low pay are direct consequences of jobs offshoring. Under pressure from “shareholder advocates” (Wall Street) and large retailers, US manufacturing companies moved their manufacturing abroad to countries where the rock bottom price of labor results in a rise in corporate profits, executive “performance bonuses,” and stock prices.

The departure of well-paid US manufacturing jobs was soon followed by the departure of software engineering, IT, and other professional service jobs. Incompetent economic studies by careless economists, such as Michael Porter at Harvard and Matthew Slaughter at Dartmouth, concluded that the gift of vast numbers of US high productivity, high value-added jobs to foreign countries was a great benefit to the US economy. In articles and books I challenged this absurd conclusion, and all of the economic evidence proves that I am correct. The promised better jobs that the “New Economy” would create to replace the jobs gifted to foreigners have never appeared. Instead, the economy creates lowly-paid part-time jobs, such as waitresses, bartenders, retail clerks, and ambulatory health care services, while full-time jobs with benefits continue to shrink as a percentage of total jobs.

These part-time jobs do not provide enough income to form a household. Consequently, as a Federal Reserve study reports, “Nationally, nearly half of 25-year-olds lived with their parents in 2012-2013, up from just over 25% in 1999.” When half of 25-year olds cannot form households, the market for houses and home furnishings collapses.

Damned if you do and doomed if you don’t. The loss of credibility will finish the job for Yellen no matter what the Fed does.

• Janet Yellen Just Got Some Pretty Bad News (CNBC)

Two days after the Federal Reserve released what was allegedly its most hawkish statement in months came a reminder that the path toward a rate hike won’t be an easy one. One of the main economic factors for Fed officials when it comes to assessing the right time to start hiking rates is wage growth, tied with the consumer spending that is supposed to follow. There was bad news on both fronts in economic data released Friday morning. The big releases of the day were on personal income, which increased just 0.1% in September, missing even the meager consensus estimate of 0.2%, and the University of Michigan consumer confidence survey, which, at 90, whiffed as well with its second-lowest reading of the year.

Below the Wall Street radar, though, came another report that doesn’t garner the headlines but is believed to be one watched closely by Fed Chair Janet Yellen and her fellow monetary policymakers: The employment cost index. The quarterly release from the Bureau of Labor Statistics showed that compensation costs for nongovernment workers rose just 0.6% in the three-month period – about what economists had expected but not much to move the inflation needle. On an annualized basis, compensation costs rose just 2%, which actually is a decline from the 2.2% increase realized for the same period a year ago. Benefit costs increased just 1.4%, despite a 3% jump in health-care packages. The news was slightly better for state and local government workers, who collectively saw a 2.3% annualized increase, compared with 1.8% in the year-ago period.

The pace of wage increases is critical to Fed thinking. Many on Wall Street took Wednesday’s statement, which referenced conditions for an interest rate increase by the end of the year, as indicating that central bank officials are close to hiking for the first time since taking their key policy rate to near-zero in late 2008. Federal Open Market Committee members are hoping to see demand-driven inflation, something hard to come by when wage increases are so anemic. The wage and confidence news comes just a day after the government reported gross domestic product growth of just 1.5% in the third quarter. With the slow wage growth, core inflation as measured through Yellen’s preferred indicator, the personal consumption expenditures index, is tracking at just 1.25%, according to Steve Blitz, chief economist at ITG.

“The FOMC, if true they are tied to trends, can only be disappointed by the trend in consumption and wage growth coming out of the third quarter,” Blitz said in a note. “Because [if] they really, really, really want to move 25 basis points in December they have to be, by their own rules, now focused on whether the individual data points for the economy in the next six weeks indicate a change in trends to the upside. In other words, the next two payroll numbers mean everything.”

Channeling Groucho: “Those are my principles, and if you don’t like them… well, I have others..”

• Fed’s Updated Model of Economy Suggests It’s Time to Raise Rates (Bloomberg)

The Federal Reserve Board released an updated version of its large-scale model on the U.S. economy that may hold clues into why policy makers pivoted at their meeting earlier this week toward a December interest-rate increase. The revised inputs and calculations on Friday suggest the economy will use up resource slack by the first quarter of 2016, according to an analysis by Barclays Plc, and that also indicates Fed staff lowered their near-term estimate for how fast the economy can grow without producing inflation – a concept known as potential growth. “The output gap appears closed,” said Michael Gapen at Barclays in New York. “This means further progress would lead to resource scarcity and potential upward pressure on inflation in the medium term.”

Gapen said that may explain why U.S. central bankers signaled this week that they will consider the first interest-rate increase since 2006 at their next meeting, on Dec. 15-16. The model assumes that the Federal Open Market Committee raises the benchmark lending rate in late 2015. However, immediate liftoff has “been a feature” of the model since late 2014, Barclays noted. In the current model, “the long-run growth rate is two-tenths lower” at 2%, Barclays said. FOMC participants forecast the economy’s long-run growth rate at 2% in September. The unemployment rate stood at 5.1% in September, and the Fed model assumes little change from that level, dipping to a low of 4.8% in a forecast horizon that extends to 2020, according to Barclays.

FOMC officials estimated full employment – or the level of the unemployment rate consistent with stable prices – at 4.9% last month. “This view is quite different than ours,” said Gapen, who formerly worked at the Fed. “We forecast ongoing declines in the unemployment rate and see it reaching 4.3% by end-2016.” The model, known as FRB/US and updated periodically, is a series of calculations put together by Fed staff that sketch out how broad measures of the economy would change based on a set of defined parameters. The staff also constructs a bottom-up forecast for policy makers before each FOMC meeting. U.S. central bankers use the models and forecasts as reference points, not sole determinants of their decision-making.

“By 2014, China’s production had reached 823 million tonnes. It was not just the world’s largest producer, it produced more than the rest of the world combined.”

• China Has Created A Steel Monster And Now Must Tame It (Reuters)

The British steel industry is in crisis. That statement may come as a surprise to non-UK readers, many of whom might well be forgiven for thinking the country’s steel mills had gone the way of other legacy industries such as coal mining and shipbuilding. But Britain produced 12.1 million tonnes of crude steel last year, making the country the fifth-largest producer in the EU. It won’t produce that much this year. The last couple of months have brought a string of closure announcements, including that of the Redcar plant in Teeside, a symbol of previous against-the-odds survival. British steel mills are struggling with UK-specific problems, particularly high energy costs that are significantly above the European average.

Stung into belated action, the government is scrambling to assemble a rescue plan, albeit with one hand tied behind its back by EU state subsidy rules. But there is a much, much bigger problem roiling steel production, not just in Britain, but across the globe. China. China exported 11.25 million tonnes of steel last month. It was an all-time high and, expressed in annualized terms, was equivalent to 80% of the entire steel output of the 28-member EU last year. This wave of Chinese steel is creating a global steel-making crisis, of which Britain is only a minor sub-plot. But the biggest crisis of all may yet turn out to be in China itself. With exquisitely bad political timing, Britain’s steel woes erupted just before the long-planned visit to the country by Chinese President Xi Jinpeng.

Xi said China was committed to eliminating surplus steel capacity with 77.8 million tonnes already shuttered and more closures planned. Overcapacity, he added, was a global problem, not just a Chinese problem. Which is true. Steel-making has been dogged for decades by structural overcapacity, a tendency to overproduction and resulting weak pricing. But this time is different, because there has never been a steel giant like China before. China’s crude steel production tripled between 1980 and 2000 to 128.5 million tonnes and then went supernova in the following decade with annual growth rates of up to 30%. By 2014, China’s production had reached 823 million tonnes. It was not just the world’s largest producer, it produced more than the rest of the world combined.

Underpinning that breakneck pace of growth was the country’s massive investment in urban infrastructure. From new cities to new roads to new airports, it all needed massive amounts of steel, and of course the iron ore used to make the steel, generating secondary booms in key suppliers such as Australia. But now the boom is over and the world is paying the price.

All on red. Expansion plans for a shrinking market. Time to ditch shares?!

• VW Sticks to $24.2 Billion China Spending Plan Amid Cost Cuts (Bloomberg)

Volkswagen will shield its five-year, €22 billion expansion plan in China from cost cuts, underscoring the importance of its largest market to stem the fallout of the diesel-emissions manipulation scandal. This year and next, VW is pushing to update about 70% of the vehicles it sells in China and introduce more than 30 models to the market. The company is aiming to boost its production capacity in China from last year’s 3 million cars to at least 5 million vehicles. The carmaker needs growth in China to at least partly offset the towering cost of recalling as many as 11 million diesel cars worldwide. Volkswagen set aside €6.7 billion for the recalls in the third quarter, acknowledging this won’t be enough.

Analysts’ estimates for the total price tag, including fines and legal costs, range from about €20 billion to as much as €78 billion. “We continue to be committed to our investment plans in China, including our capacity goal,” Larissa Braun, a spokeswoman for VW’s Chinese business, said Friday in an e-mailed response to questions. The Wolfsburg-based manufacturer will make the investments together with joint venture partners SAIC Motor and FAW Car. The expansion comes even as the Chinese economy slows and many cities consider restricting car purchases to fight traffic jams and pollution. The market is such a priority that VW’s new Chief Executive Officer Matthias Mueller made the country his first major trip destination as CEO, joining German chancellor Angela Merkel on a trade mission this week.

All oil majors are in far deeper doodoo then they let on. All big producing nations too.

• Chevron to Cut Up to 7,000 Jobs (WSJ)

Chevron on Friday said it could cut 6,000 to 7,000 jobs and pare its capital spending by 25% next year, as profit tumbled in its third quarter. Still, results for the quarter fell less than Wall Street had expected. Shares of Chevron, down 20% this year, added 1% in premarket trading. Chevron didnt detail when the job cuts could occur. As of December 2014, Chevron had about 64,700 employees, according to a securities filing. The second-biggest U.S. oil company said it expects capital spending of $25 billion to $28 billion in 2016, down 25% from this year’s budget. The company said it expects to cut spending further in 2017 and 2018, to around $20 billion to $24 billion. For the quarter ended Sept. 30, Chevron reported earnings of $2.04 billion, or $1.09 a share, down from $5.6 billion, or $2.95 a share, a year earlier. Revenue fell 37% to $34.32 billion.

Analysts polled by Thomson Reuters expected Chevron to post 76 cents a share in earnings on $29.76 billion in revenue for the third quarter. A 15% reduction in capital spending to $7.97 billion helped prop up earnings in the period. Foreign currency effects also added $394 million to profit in the quarter, up from $366 million a year earlier. The company eked out a $59 million profit in its exploration and production segment, down from a profit of $4.65 billion a year earlier. Its U.S. segment swung to a loss of $603 million from a profit of $929 million a year earlier. The company’s average price for a barrel of crude oil and natural gas liquids was $42 in the quarter, down from $87 a year ago. The average price for natural gas was $1.96 per thousand cubic feet, down from $3.46 in the prior year.

A deflating fairy tale of riches.

• Saudi Arabia Credit Rating Cut by S&P After Oil Prices Sink (Bloomberg)

Saudi Arabia’s credit rating was cut by Standard & Poor’s , which said the decline in oil prices will increase the budget deficit in a country that relies on energy exports for 80% of its revenue. S&P cut the sovereign rating one level to A+, the fifth-highest classification, as it said the biggest OPEC producer’s deficit will increase to 16% of GDP this year. The nation’s credit outlook is negative as the decline in oil prices makes it difficult to reverse the fiscal deterioration, S&P said in a statement. “Credit metrics for oil producers like Saudi Arabia are coming under pressure,” said Steve Hooker, a money manager at Newfleet in Hartford, Connecticut, who helps oversee $12.5 billion of debt. “It’s not likely to reverse until the oil prices go up.”

The widening deficit and a high reliance on energy revenue “point to vulnerabilities in Saudi Arabia’s public finances,” the ratings company said. Brent crude has plunged 27% from this year’s high in May amid a persistent global supply glut. Still, public debt in Saudi Arabia is among the world’s lowest, with a gross debt-to-GDP ratio of less than 2% in 2014. “We could lower the ratings within the next two years if Saudi Arabia did not achieve a sizable and sustained reduction in the general government deficit, or its liquid fiscal financial assets fell below 100% of GDP,” Trevor Cullinan, a credit analyst at the rating company, said in the statement.

The Saudi Finance Ministry said it “strongly disagrees with S&P’s approach to ratings management in this particular instance.” The downgrade was “driven by fluid market factors rather than changes in the fundamentals of the sovereign,” which “remain strong,” the ministry said in a statement on the website of state-run Saudi Press Agency. The country is rated Aa3 by Moody’s Investors Service, the equivalent of one step higher than S&P’s new grade. S&P’s classification for Saudi Arabia is the same as Slovakia, Ireland, Bermuda and Israel.

No mention of action other than freeing up $120 million that had been frozen.

• Swiss Probe Banks to Gauge Exposure to Petrobras Scandal (Bloomberg)

Switzerland’s finance regulator is investigating local banks to gauge their possible exposure to a widening scandal surrounding Brazilian oil producer Petrobras. The regulator, known as Finma, said it is looking into whether banks and securities trading firms met their due-diligence obligations in possible cases of money laundering, and whether any possible incidents were reported to authorities. Bern, Switzerland-based Finma didn’t identify the banks that it began talking to months ago as part of the ongoing investigation. Switzerland’s attorney-general in March released $120 million of $400 million in assets tied to suspicious Petrobras-related transactions that had previously been frozen. The Rio de Janeiro-based oil and gas producer is mired in a corruption scandal in which company executives allegedly directed hundreds of millions of dollars from overpriced contracts to politicians.

The worsening affair has sent investor confidence in Brazil tumbling, plunged Latin America’s largest country into recession and triggered calls for Brazilian President Dilma Rousseff to be impeached over her handling of the matter. Swiss prosecutors said in March they’d uncovered more than 300 accounts belonging to senior Petrobras executives and its suppliers at more than 30 banking institutions apparently used to “process bribery payments.” Valor reported on the Finma probe earlier. Swiss Attorney-General Michael Lauber and his Brazilian counterpart Rodrigo Janot have complimented each other on the speed and cooperation with which the two countries’ justice systems have worked together, at a time when Swiss justice has been criticized for moving too slowly.

Makes no difference when you’re TBTF.

• Largest US Banks Face $120 Billion Shortfall Under New Rule (Reuters)

Six big U.S. banks need to raise an additional $120 billion, most likely in long-term debt, under a rule proposed on Friday by the Federal Reserve. The requirements are aimed at ensuring that some of the biggest and most interconnected banks, which include Goldman Sachs, JPMorgan and Wells Fargo, can better withstand another crisis by turning some of their debt, particularly debt issued by their holding companies, into equity without disrupting markets or requiring a government bailout. The banks are expected to meet the $120 billion shortfall by issuing debt, which is usually more cost-effective than issuing equity, according to Federal Reserve officials speaking at a background press briefing Friday.

The rule proposed Friday, largely in line with banks’ expectations, concerns the lenders’ total loss-absorbing capacity. It is one of a series of rules aimed at reducing risk in the banking system by determining how much debt and equity banks should use to fund themselves. In a procedural vote, the Fed’s governors approved a draft of the proposal, meaning it will be submitted for public comment. During a public meeting with Fed officials, one staffer who worked on the rule said banks should have an easy time complying, because many requirements overlapped with existing rules. Further, the bulk of the debt requirements can be fulfilled by refinancing existing debt, the staffer said.

Some requirements must be met by Jan. 1, 2019, while more-stringent requirements must be met by Jan. 1, 2022. The requirements are most stringent for JPMorgan, followed by Citigroup. After that come Bank of America, Goldman Sachs and Morgan Stanley, all of which have the same requirement. Wells Fargo’s requirement is the next highest, followed by State Street and finally Bank of New York Mellon. JPMorgan has more than $2 trillion in total assets, making it the largest U.S. bank by that measure.

Portugal’s president is playing a murky role in this.

• Portugal Risks Becoming ‘Ungovernable’: President (Telegraph)

Portugal risks becoming “ungovernable” as Leftist forces prepare to topple the returning government of prime minister Pedro Passos Coelho after just 11 days, the country’s president has warned. Mr Passos Coelho – whose pro-bail-out coalition presided over four years of austerity policies – was sworn into office on Friday after his ruling coalition finished first in recent elections, but lost its parliamentary majority. The appointment was met with controversy after the country’s president vowed to block an alliance of Leftist, anti-EU parties from taking the reins of office. The coalition of Socialists, Communists and the radical Left have vowed to bring down the minority government when a parliamentary vote is held on November 10. A collapse would make it the shortest government in Portugal’s 40 years of post-war democracy.

Addressing the nation, president Anibal Cavaco Silva defended himself against accusations of constitutional over-reach. But the head of state struck a more conciliatory tone, calling for all the main parties to broker a compromise to stop Portugal from descending into political chaos. “Without political stability, Portugal will become an uncontrollable country. And, of course, no one trusts an ungovernable country,” said the president. “The government taking over today does not have majority in parliament so the effort of dialogue and compromise has to proceed with the other political forces to seek the necessary understanding.” Mr Cavaco Silva warned the anti-austerity Left against derailing four years of fiscal consolidation and poisoning relations with the EU.

Prime minister Passos Coelho said Portugal’s commitment to the eurozone was “imperative”. “Nobody should risk the well being of the Portuguese in the name of ideological agendas or personal or political ambition,” he said. Despite exiting its €78bn bail-out last year, Portugal has the highest combined debt levels in the eurozone and the second highest government deficit at -7.8pc. The pro-euro opposition Socialist party is presenting itself as the only stable government having agreed to work with the two more strident anti-EU forces on the left. Together they will command a majority of over 50pc in the 230-seat parliament. The Left-wing alliance has reportedly agreed to reverse many of the fiscal measures taken by the previous conservative government, providing relief to low-income pensioners and workers.

A country ruled by money.

• Subprime Mortgages Make Surprise Comeback In The UK (Guardian)

Sub-prime mortgages, widely blamed for causing the 2007-08 financial crisis, are making a surprise comeback in the UK, with several new lenders launching home loans for people with poor credit histories. Lenders are targeting people who have faced serious financial problems including repossession and bankruptcy – as well as those with more minor blots on their records – for the mortgages, which come with interest rates as high as 8%. Bluestone Mortgages, a lender part-owned by Australia’s biggest investment bank, has just launched in the UK, following hard on the heels of another Australian-owned business, Pepper Homeloans, which similarly caters for those who have experienced a “credit event” such as missing payments on a previous mortgage. Another recent arrival is Foundation Home Loans, which offers buy-to-let mortgages to people who have had financial problems.

These three join a group of other players in a sector that argues it is offering a lifeline to the sizeable number of people who have suffered a financial “hiccup” and as a result are being rejected by the big name high street lenders. But the new wave of sub-prime mortgages on offer may prompt concern among those who fear a return to the lending practices of the past. And these mortgages come at a price: some borrowers taking out a two-year fixed-rate deal will be charged as much as 7%-8%, compared with current best-buy rates of as little as 1.54% on conventional loans. Peter Tutton, head of policy at StepChange debt charity, sounded a note of caution, pointing out that “last time around, before the crash, there were some really bad lending practices. Certain sub-prime lenders were lending to people who couldn’t afford it and were vulnerable and were being repossessed.”

“Tsipras also said any suggestion that Greece was not effectively safeguarding the EU’s outermost borders – he referred to leaders of “certain European countries” – was borne of ignorance of international law dictating protection of the lives of people in distress at sea.”

• Greek PM Tsipras Says Shamed By Europe’s Handling Of Refugee Crisis (Reuters)

Greece’s prime minister said on Friday he was ashamed to be a member of a European Union that he said was sidestepping responsibilities over the migrant crisis and crying hypocritical tears for children who have drowned trying to reach its shores. In some of the hardest-hitting comments yet on a crisis resonating throughout Europe, Alexis Tsipras told parliament Greece didn’t want a “single euro” for saving lives as thousands of refugees continued to arrive daily on its shores, and the EU remained at odds on how to deal with the influx. At least 35 people drowned trying to cross the sea between Turkey and Greece this week. Authorities fear the death toll will rise as more people attempt the short but dangerous passage to Greece before the onset of winter.

“I feel ashamed as a member of this European leadership, both for the inability of Europe in dealing with this human drama, and for the level of debate at a senior level, where one is passing the buck to the other,” Tsipras told parliament. Impoverished Greece has been a transit point for more than 570,000 refugees and migrants fleeing conflict in the Middle East and beyond since January, triggering bickering among European nations. Speaking during prime ministers’ question time, Tsipras also said any suggestion that Greece was not effectively safeguarding the EU’s outermost borders – he referred to leaders of “certain European countries” – was borne of ignorance of international law dictating protection of the lives of people in distress at sea. “These are hypocritical, crocodile tears which are being shed for the dead children on the shores of the Aegean.”

“Dead children always incite sorrow. But what about the children that are alive who come in thousands and are stacked on the streets? Nobody likes them.” [..] Although his migration minister was quoted as saying earlier this week that EU financing was needed for a subsidized housing program to work, Tsipras said Greece did not expect to get paid for saving lives. “Greece is in crisis. We are a poor people, but we have retained our values and humanity, and we aren’t claiming a single euro to do our duty to people who are dying in our back yard,” Tsipras said, after an opposition lawmaker asked what Greece had received in return for agreeing to host refugees. His country, he said, couldn’t put a price on the human cost. “I’m not addressing you,” he told a lawmaker. “I’m addressing those European partners who are wagging their finger at Greece.

The time for safe passage is long overdue.

• Greece Says 22 Refugees Drown Off Aegean Islands, 144 Rescued (Reuters)

Greece rescued 144 refugees and recovered the bodies of 22, including four infants and nine children, after their boats sank in two separate incidents in the Aegean sea, the coastguard said on Friday. The death toll from drownings at sea has mounted recently as weather in the Aegean has taken a turn for the worse, turning wind-whipped sea corridors into deadly passages for thousands of refugees crossing from Turkey to Greece. The coast guard said 138 migrants were rescued and 19 drowned after their wooden boat capsized off the island of Kalymnos late on Thursday. In a second incident off the island of Rhodes, three people, including a child and an infant, drowned and four were missing. Six people were rescued at sea, the coastguard said.

Some 16 people, including two infants and eight children, were confirmed dead and 274 people were rescued when a wooden boat they were on literally fell apart in rough seas off the Greek island of Lesbos late on Wednesday. Greece has been a transit point for more than 570,000 refugees and migrants fleeing conflict in the Middle East and beyond this year, triggering bickering among European nations at odds on how to deal with one of the biggest humanitarian crises in decades. Refugees have reported smugglers offering ‘discounts’ of up to 50% on tickets costing between 1,100 to 1,400 euros to make the journey on inflatable rafts in bad weather, UN refugee agency UNHCR said on Thursday. Perceptibly sturdier wooden boats cost more, at between €1,800 and €2,500 €per passenger.

“The waves of the Aegean are not just washing up dead refugees, dead children, but (also) the very civilization of Europe..”

• Tsipras: Aegean Waves Wash Up Dead Children, And Europe’s Very Civilization (AP)

Drowned babies and toddlers washed onto Greece’s famed Aegean Sea beaches, and a grim-faced diver pulled a drowned mother and child from a half-sunk boat that was decrepit long before it sailed. On shore, bereaved women wailed and stunned-looking fathers cradled their children. At least 27 people, more than half of them children, died in waters off Greece Friday trying to fulfill their dream of a better life in Europe. The tragedy came two days after a boat crammed with 300 people sank off Lesbos in one of the worst accidents of its kind, leaving 29 dead. It won’t be the last. As autumn storms threaten to make the crossing from Turkey even riskier and conditions in Middle Eastern refugee camps deteriorate, ever more refugees – mostly Syrians, Afghans and Iraqis – are joining the rush to reach Europe.

More than 60 people, half of them children, have died in the past three days alone, compared with just over a hundred a few weeks earlier. Highlighting political friction in the 28-nation European Union, Greece’s left-wing prime minister, Alexis Tsipras, cited the horror of the new drownings to accuse the block of ineptitude and hypocrisy in handling the crisis. [..] Speaking in Athens, Tsipras accused Europe of an “inability to defend its (humanitarian) values” by providing a safe alternative to the sea journeys. “The waves of the Aegean are not just washing up dead refugees, dead children, but (also) the very civilization of Europe,” he said, dismissing Western shock at the children’s deaths as “crocodile tears.” “What about the tens of thousands of living children, who are cramming the roads of migration?” he said.

“I feel ashamed of Europe’s inability to effectively address this human drama, and of the level of debate … where everyone tries to shift responsibility to someone else.” Tsipras’ government has appealed for more assistance from its EU partners. It argues that those trying to reach Europe should be registered in camps in Turkey, then flown directly to host countries under the EU’s relocation program, to spare them the sea voyage. But it has resisted calls to demolish its own border fence with Turkey, which would also obviate the need to pay smugglers for a trip in a leaky boat. “My opinion is that at this stage — for purely practical reasons — … the opening of the border fence is not possible,” Greek Migration Minister Yiannis Mouzalas said.

“When talking about receiving refugees, it’s not under our control — they are coming,” he told state ERT TV. “So it’s a question of how we address this problem. … We will not put them in jail or try to drown them. They will have all the rights that they are allowed under (international) agreements and Greek law.” Greece’s Merchant Marine Ministry said 19 people died and 138 were rescued near the eastern island of Kalymnos early Friday, when a battered wooden pleasure boat capsized. Eleven of the victims were children, including three babies. At least three more people — a woman, a child and a baby — died when another boat sank off the nearby island of Rhodes, while an adult drowned off Lesbos.

Curious: the version of the AP piece above, as posted by HuffPo, was quoted by Zero Hedge as containing the bolded lines in this piece below. But when I looked at the link, these lines had been edited out. An NBC version also misses the reference to western military action. The New York Post version still carries them.

• Tsipras Blames Migrant Flows On Western Military Action In Middle East (AP)

Greek Prime Minister Alexis Tsipras accused Europe of an “inability to defend its (humanitarian) values” by providing a safe alternative to the dangerous sea journeys. “I want to express … my endless grief at the dozens of deaths and the human tragedy playing out in our seas,” he told parliament. “The waves of the Aegean are not just washing up dead refugees, dead children, but (also) the very civilization of Europe.” Tsipras accused western countries of shedding “crocodile tears” over children dying in the Aegean but doing little for those who make it across. “What about the tens of thousands of living children, who are cramming the roads of migration?” he said.

Tsipras blamed the migrant flows on western military interventions in the Middle East, which he said furthered geopolitical interests rather than democracy. “And now, those who sowed winds are reaping whirlwinds, but these mainly afflict reception countries,” he added. “I feel ashamed of Europe’s inability to effectively address this human drama, and of the level of debate … where everyone tries to shift responsibility to someone else,” Tsipras said.

“Many Afghans dream of a better life in Europe. About 80,000 applied for asylum in Europe in the first half of 2015 alone, with most of them going to Germany.”

• The Next Wave: Afghans Flee To Europe in Droves (Spiegel)

Redwan Eharai’s journey ends where it began: in Afghanistan, in the city of Herat. Eharai, a 15-year-old boy, is carrying the heavy body of his mother Sima up the hill to the cemetery, together with neighbors and relatives. He and his mother had set out from Afghanistan together, headed for Germany. Now he is standing at her grave. She died at the border between Iran and Turkey, struck in the head by a bullet fired by an Iranian police officer. Hundreds of people have now come to say their goodbyes. When she was still alive and urgently needed help, no one was there for her, says Eharai, as he looks into his mother’s grave. Despite his stubble, which makes him look almost like a grown man, he currently seems more like a child.

His family is poor – Eharai’s father died of a brain tumor five years ago, and Sima, his 43-year-old mother, suffered from depression. She had trouble sleeping and cried a lot. In Afghanistan, being a widow without an income, and with three children, is like being buried alive, says Eharai – you have no rights at all. Instead, Sima Eharai decided to leave Afghanistan and go to Germany with three of her children, Adnan, Erfan and Redwan. Sanaz, her eldest daughter, was already living in Frankfurt. Her mother, determined that she would have a better life, had arranged for her to marry a German of Afghan descent. “I can’t continue living like this,” Sima Eharai said when she called her daughter the last time. “Either I make it to you or I’ll follow my husband into death.”

Many Afghans dream of a better life in Europe. About 80,000 applied for asylum in Europe in the first half of 2015 alone, with most of them going to Germany. They are the second-largest group of refugees and migrants in Germany after Syrians. At the moment, people are flooding into Herat Province from all over Afghanistan. From there, they drive across the border to Iran or travel farther south to cross into Iran along a less well-guarded section of the border. About 3,000 Afghans are now coming into Iran every day illegally. From there, they continue to Turkey, where they board boats to the Greek islands of Lesbos or Kos and then cross the Balkans to Northern Europe.

That just moves the problems somewhere else.

• Refugee Crisis: Germans Restrict Entry Points From Austria (BBC)

Germany is to restrict the number of entry points for migrants arriving via Austria, in a bid to control the flow as thousands cross into Bavaria daily. It says it has reached agreement with Austria on five crossing points on the 800km (500-mile) border. Authorities in Bavaria have complained a lack of co-ordination with Austria is hampering efforts to aid new arrivals. Many others continue to make their way via Greece, in freezing temperatures, hoping to get asylum in Germany. Meanwhile, more than 20 migrants – many of them children – have drowned in more boat sinkings in Greek waters while they were trying to reach EU countries via Turkey. Greek officials said 19 people had died and 138 were rescued near the island of Kalymnos.

Three others died off Rhodes and three were missing. Six were rescued there. And the Spanish coastguard called off the search for 35 migrants missing at sea the day after their boat was shipwrecked en route from Morocco. Fifteen migrants were rescued alive from the vessel and the bodies of four others were found. A spokeswoman for Germany’s interior ministry told AFP news agency that the new rules on entry points would go into effect immediately. “We would like to have a more orderly procedure,” she said. A senior Bavarian politician said that under the agreement, 50 migrants an hour could cross into the state at the five agreed points.

Earlier this week, German Interior Minister Thomas de Maziere accused Austria of transporting refugees to the German frontier at night, leaving them there unannounced. Federal police spokesman Heinrich Onstein has said everything was being done to prevent the migrants from having to sleep outdoors. He said the problem had been that “we do not know how many people will arrive, and at which border post”. However an Austrian police spokesman dismissed such accusations as a “joke”, given that Austria was receiving 11,000 people a day just at the Spielfeld crossing from Slovenia. Germany expects at least 800,000 asylum seekers this year – some estimates put it as high as 1.5 million. That is at least four times the number who arrived last year.