Lazard Archives - The Automatic Earth

And now for something completely unexpected: 2 minutes of pure truth (courtesy of Mizuho’s Steve Ricchiuto) on CNBC… 148 seconds of awkward uncomfortable truthiness…

While Steve had a number of hard to hear quotes for the CNBC anchors – such as: “There is no acceleration in underlying economic activity,” and “There’s this wrong concept that I keep on hearing about in the financial press about the acceleration in economic growth… It’s not happening!” A stunned Simon Hobbs rebuffs, “That’s a long list of non-ideal situations we find ourselves in,” to which Ricchiuto snaps back “and we can keep on going!”

“After a string of dismal data on durable goods, retail spending, and inventories, we get a good jobs number and everyone saying the economy’s good – it’s not good! It was Sara Eisen that had the quote of the brief clip… (which has unbelievably been edited out since we posted it seems at around the 1:40 mark) when faced Steve’s barrage of facts about the real economy, replied: “but the key is that’s not what The Fed is telling us.” Summing up the unbelievable ‘faith’ (misplaced beyond all reputational loss) that so many have in the central planners of the world.

Very lucid explanation of one of Steve’s longtime big themes and squabbles with Krugman: the role of banks in debt creation.

• Nobody Understands Debt – Including Paul Krugman (Steve Keen)

Paul Krugman has published a trio of blog posts on the issue of debt in the last week: “Debt Is Money We Owe To Ourselves” (February 6th at 7.30am), “Debt: A Thought Experiment” (same day at 5.30pm), and finally “Nobody Understands Debt” (February 9th in an Op Ed). There is one truly remarkable thing about all three articles: not one of them contains the word “Bank”. Now you may think it’s ridiculous that an economist could discuss the macroeconomics of debt, not once but three times, and never even consider the role of banks. But Krugman would tell you why you don’t need to consider banks when talking about debt, and call you a “Banking Mystic” if you persisted. Well Krugman would be wrong, and you would be right.

This is one of the many times where “experts” in economics have it all wrong, and the general public’s gut feelings about banks, debt and money are closer to the truth. Bank lending is fundamentally important to the performance of the economy, and it is also fundamentally different to lending between individuals. But mainstream economics has convinced itself of the opposite propositions—that lending (most of the time) has trivial macroeconomic implications (the exception being during a “liquidity trap”), and that bank lending to individuals is really no different to lending between individuals. Bunkum—and it’s easy to show why using that boring but vital tool of the accountant, double-entry bookkeeping.

Imagine that you want to buy a new iPhone 6, but you don’t have the $299 Apple wants for it. There are two ways you can get the money: you can borrow from a friend—who transfers money from her bank account to yours—which we can call “Peer to Peer” lending. Or you can add to your credit card debt with your bank—which obviously is “Bank Lending”. Are the two operations macroeconomically equivalent? Or if they are not, are there rules that constrain bank lending so that it’s effectively just the same as “peer to peer” lending? I’ll consider the first point in this article and tackle the second in a later post.

If you borrow from a friend—let’s call you “Impatient” and your friend “Patient” to borrow Krugman’s terminology—then from the situation, as seen from the bank’s point of view, is as shown in Table 1. When you borrow the money, Patient’s deposit account falls by $299, while yours rises by $299. Then when you buy the iPhone, your account falls by $299, and Apple’s rises by $299. Apple gets an extra $299 in income, but since Patient’s bank account has fallen by that much, she is likely to spend less over time, which will reduce someone else’s income by about as much as Apple’s income rose.

“Nothing is going to go worse, every day is the worst day.”

• Cornered Greeks Brace For Confrontation (BBC)

Everyone in Greece has been watching closely as the rhetoric hardens, because they all have something at stake. At a union office in a northern suburb of Athens, a radio programme was going on air. Former employees of the former state broadcaster, ERT, who were abruptly fired in 2013, are still working without pay, determined to talk to the nation. Their makeshift studio is just across the road from their old headquarters, and Syriza has promised to rehire them and reopen ERT. “If we’re building a new country,” argued radio host Andreas Papastamatiou, “we have to [give people] the proper information.” “But we must [also] find a way to live together as European countries. Not as the emperor and his subjects.”

Opinion polls suggest that a growing number of people like the fact that Greece is trying to stand up for itself, and is taking its argument to the rest of the Europe. But they know they will not get everything they want. Now as eurozone finance ministers prepare to meet for what could be a stormy emergency session, the Greek government is floating proposals it clearly sees as a compromise. “What we are proposing,” the Minister for International Economic Affairs, Euclid Tsakalotos, told me, “is that we are given some room for manoeuvre.” “We are presenting a fair case – you cannot reform when people are frightened and uncertain. You need a certain amount of stability first.” [..]

An hour’s drive west of Athens tugboats pull large cargo ships along a narrow channel between the sheer limestone walls of the Corinth Canal. There is no room for manoeuvre – a familiar story for the Greek economy. But it is not hard to find out why Syriza is determined to negotiate some wiggle room. In a cafe overlooking the entrance to the canal, locals described the economy as a disaster, and their own prospects as bleak. The cafe owner, Vassiliki Kourtaki, said she was well aware of the increasingly bitter dispute between Greece and some of its Eurozone partners. But the sense of looming confrontation no longer scared her. “Scary is what we have now,” Vassiliki said. “Nothing is going to go worse, every day is the worst day.”

“The government has to do something now, because we need a lot of help. “And when you are down, the only way is up.” That is where Syriza believes its mandate comes from. And the tone of the prime minister’s speech suggests that he is willing to take his country right to the brink if necessary. The recent history of the European Union suggests that compromise is still on the cards. But if there is no deal by the end of the month the money will run out. And there is a clear and present danger of failure, with consequences impossible to predict.

“There is no way back,” he said. “As long as we have the people by our side, we cannot be blackmailed by anyone.”

• Greek PM Tsipras Wins Confidence Vote Before Talks With Creditors (NY Times)

With Greece preparing for tough talks with creditors in Brussels, Prime Minister Alexis Tsipras’s government easily won a confidence vote in Parliament early Wednesday with assurances that it would reverse an economic program that has slashed living standards. Speaking to Parliament before the vote, Mr. Tsipras said his government would seek a short-term “bridge” agreement to a new deal and a “necessary” reduction of Greek debt. He appealed for “space and time,” instead of an extension of the current loan program, saying the country could not “return to an age of bailouts and suppression.” Mr. Tsipras told lawmakers, “This is our red line” – a short-term bridge agreement without further austerity.

In the vote, his government, which came to power last month, secured the support of all 162 coalition lawmakers in the 300-seat House. But winning over international creditors – the EC, ECB and IMF, which have extended Greece more than $270 billion in bailout loans since 2010 – will be much more difficult. Mr. Tsipras said he was optimistic about a “mutually acceptable agreement” with creditors. But earlier in the day, Wolfgang Schäuble, the finance minister of Germany, which has championed austerity in economically troubled eurozone states, appeared to dismiss the prospect of a new plan for Greece. “We are not negotiating a new program,” Mr. Schäuble said amid a flurry of diplomacy aimed at laying the groundwork for a compromise.

Greece’s finance minister, Yanis Varoufakis, is expected to present his compromise plan at a summit meeting Wednesday in Brussels. The proposal anticipates a bridge financing program through the end of August and a change in the mix of economic measures imposed by creditors, a Greek official said Monday. Mr. Tsipras did not give details on the proposal but indicated that Greece would press its case. “There is no way back,” he said. “As long as we have the people by our side, we cannot be blackmailed by anyone.” Polls indicated that seven in 10 Greeks backed the tough stance toward the country’s creditors. The same proportion said they wanted Greece to remain in the eurozone “at all costs” amid renewed speculation about the Greece’s defaulting on its huge debt, which stands at 175% of GDP, and about its leaving the single-currency union.

“Greece is in a sense escalating its demands. It now wants to repeal the Troika Memorandum, and raise its T-bill issuance limit by a further €8bn, AND secure loans as well. Good luck.”

• Greece’s Last Minute Offer To Brussels Changes Absolutely Nothing (AEP)

The art of Game Theory brinkmanship is to convince opponents that you are utterly defiant, almost insane, and willing to bring the temple crashing down on everybody’s heads. Then you smile and talk turkey. Greece’s Syriza radicals are proving good at this, at least in demonstrating, or feigning, madness. Finance minister Yanis Varoufakis – by all reports the new heart-throb for the thinking German woman – is a theorist on the subject. He wrote a book, “Game Theory: A Critical Text” in 1995. Now he is putting it into practice with great relish. His latest letter to European Commission chief Jean-Claude Juncker is a sudden switch in tone. You can almost hear the sighs of relief in Brussels. The Eurogroup may not have to hit the pre-GREXIT button this week after all. The crunch can be put off for a bit longer. Greek newspaper Ekathimerini calls it a plan with four pillars:

1) Keep 70pc of the “good” EU-IMF Troika reforms. This means scrapping the other 30pc of course, as yet unnamed. These will be replaced ten new reforms in cooperation with the OECD that in principle go deeper and tackle the cartel/oligarchy system of the old dynasties. Abolish the Troika. Europe could live with this.

2) Cut the target for the primary budget surplus to 1.5pc of GDP over the next two years, instead of 3pc in 2015 and 4.5pc in 2016 as demanded by the Troika. This will stabilize fiscal policy, and open the way for durable recovery. Europe will scream, fretting that fiscal discipline will collapse across Club Med. The Spanish will scream because it will embolden Podemos. But the Americans and Chinese will scream at Europe. The G2 superpowers matter.

3) A debt swap to replace €195bn of loans from EMU governments and rescue funds. These will be GDP-linkers based on Keynes’s Bisque Bonds. No growth, no interest payments. Creditors put their money where their mouth is. The €27bn owed to ECB will be turned into “perpetual bonds”, parked on ECB balance sheet, more or less for ever. This averts a debt write-off – and therefore spares Chancellor Angela Merkel the unpleasant task of explaining to the Bundestag and Bild Zeitung why German taxpayers have just lost a great deal of money – but it amounts to the same thing by the back door. It is further debt relief. Lazard in Paris said today -seemingly on behalf of Athens – that Greece wants a €100bn cut in the ultimate debt stock. They are pitching their opening bid very high.

Europe will scream. Italy and Spain will scream loudest, since they pay too. If they accept this, it would amount to capitulation by Brussels. Furthermore, Mr Varoufakis is extending the plan until September 1. He wants to bite deep into the next Troika loan payment – something Syriza said before that it would never do – in order to pay off ECB loans. This means Europe will have to hand over fresh money. Greece is in a sense escalating its demands. It now wants to repeal the Troika Memorandum, and raise its T-bill issuance limit by a further €8bn, AND secure loans as well. Good luck. The country has funding needs of €17bn by the end of August. Some of this can be covered from a plethora of extraordinary items if EMU wants to play ball, but not all.

4) An emergency humanitarian plan worth €1.86bn. Food stamps. Free power for 300,000 homes below poverty threshold. Free health and transport for the poor. A pension boost for lowest cohort. Europe can live with this. So there we have it. Syriza has not backed down (though I note that the rise in the minimum wage is not on this very provisional list). Its core demands remain. Panagiotis Lafazanis, head of Syriza’s powerful Left Platform, reiterated in the Greek parliament that there will be no fundamental concession. “Greece is not a protectorate. If the EU’s ruling elites think they can blackmail us, they are very wrong,” he said.

What has changed is that Mr Varoufakis will go to Brussels on Wednesday with a package that will most likely throw enough sand in everybody’s eyes – and exploit mounting alarm in EMU circles that this showdown is becoming dangerous – to force a delay. EMU lives on. Yet nothing of substance has changed. The eurozone still faces its Morton’s Fork: either it finds a way to surrender to the Greek mutineers on austerity and debt (calling it victory), or it persists in holding Syriza to the letter of a discredited and destructive Troika deal agreed by a previous government, and in doing so risks blowing up the European Project. Either way, we are already in an entirely different Europe.

“The real nightmare for Merkel’s government is that the next two largest countries in the capital key are on a fast track toward their own fiscal demise.”

• Europe’s Greek Showdown: The Sum Of All Statist Errors (David Stockman)

The politicians of Europe are plunging into a form of ideological fratricide as they battle over Greece. And “fratricide” is precisely the right descriptor because in this battle there are no white hats or black hits – just statists. Accordingly, all the combatants—the German, Greek and other national politicians and the apparatchiks of Brussels and Frankfurt – are fundamentally on the wrong path, albeit for different reasons. Yet by collectively indulging in the sum of all statist errors they may ultimately do a service. Namely, discredit and destroy the whole bailout state and central bank driven financialization model that threatens political democracy and capitalist prosperity in Europe – and the rest of the world, too. The most difficult case is that of the German fiscal disciplinarians.

Praise be to Angela Merkel and her resolute opposition to Keynesian fiscal profligacy and her stiff-lipped resistance to the relentless demands for “more stimulus” from the likes Summers, Geithner, Lew, the IMF and the pundits of the FT, among countless others. At least the Germans recognize that if the EU nations are going to devote 49% of GDP to state spending, including nearly a quarter of national income to social transfers, as was the case in 2014, then they bloody well can’t borrow it. Notwithstanding the alleged German led austerity regime, however, that’s exactly what they are doing. Germany has managed to swim against the surging tide of EU public debt, lowering its leverage ratio from 80% to 76% of GDP in the last four years.

Indeed, Germany’s frustration with the rest of the European fiscal sleepwalkers is more than understandable, as is its fanatical resolve not to give an inch of ground to the Greeks. Or as Merkel’s deputy parliamentary leader, Michael Fuchs told Bloomberg, “There is no way out” for Greece from its treaty obligations….. conditions set for Greece by The Troika (EU, ECB, IMF) for bailout funds “have to be fulfilled…. That’s it, very simple.” This isn’t just teutonic rigidity. It’s actually all about the so-called capital contribution key—-the share of the EU bailout fund that must be covered by each member country in the event of a default.

At dead center of Greece’s $350 billion of debt is $210 billion owed to the Eurozone bailout mechanism. Germany’s share of that is 27% or roughly $57 billion. Yet the prospect of tapping the German taxpayers for some substantial part of that liability in the event of a Greek default is not the main problem—-even as it would mightily catalyze Germany’s incipient anti-EU party. The real nightmare for Merkel’s government is that the next two largest countries in the capital key are on a fast track toward their own fiscal demise. So what puts a stiff spine into its insistence that Greece fulfill the letter of its MOU obligations is that if either France or Italy is called upon to cover losses, the whole bailout scheme will go up in smoke.

“As part of a wider appeal to Europe for solidarity, Greece’s new finance minister has suggested a parallel between his country and the rise of Nazism in a bankrupt Germany in the 1930s..”

• Germany Rejects Greek Claim For World War II Reparations (Reuters)

– Germany said on Monday there was “zero” chance of it paying World War Two reparations to Athens, following a renewed demand from Greece’s new leftist Prime Minister Alexis Tsipras. Tsipras, in his first major speech to parliament on Sunday, laid out plans to dismantle Greece’s austerity program, ruled out any extension of its €240 billion international bailout and vowed to seek war reparations from Berlin. The demand for compensation, revived by a previous Greek government in 2013 but not pursued, was rejected outright by Sigmar Gabriel, Germany’s vice chancellor and economy minister. “The probability is zero,” said Gabriel, when asked if Germany would make such payments to Greece, adding a treaty signed 25 years ago had wrapped up all such claims.

Germany and Greece share a complex history that has complicated the debt debate. Greece was occupied by German troops in World War Two, an issue that has resurfaced since it has been forced to endure tough reforms in return for a financial bailout partly funded by euro zone partners. Many Greeks have blamed euro zone heavyweight Germany for the austerity, leading to the revival of a dormant claim against Berlin for billions of euros of war reparations. As part of a wider appeal to Europe for solidarity, Greece’s new finance minister has suggested a parallel between his country and the rise of Nazism in a bankrupt Germany in the 1930s, referring to Greece’s far-right Golden Dawn party.

Gabriel referred to the “Treaty on the Final Settlement with respect to Germany”, also known as the “Two plus Four Treaty” signed in September 1990, by the former West and East Germanys and the four World War Two allies just before German reunification. Under its terms, the four powers renounced all rights they formerly held in Germany. For Berlin, the document, also approved by Greece among other states, effectively drew a line under possible future claims for war reparations. Germany thus denies owing anything more to Greece for World War Two after the 115 million deutsche marks it paid in 1960, one of 12 war compensation deals it signed with Western nations. But Athens has said it always considered that money as only an initial payment, with the rest of its claims to be discussed after German reunification, which eventually came in 1990.

“Greece is in a situation of financial distress, it knows a humanitarian crisis like Europe has not known since World War II..”

• Lazard Sees $113 Billion Greek Debt Cut as ‘Reasonable’ (Bloomberg)

Canceling €100 billion of Greece’s debt would enable the country to cut the load in line with targets set by the international authorities that bailed out the nation, the country’s debt adviser, Lazard Ltd.’s Matthieu Pigasse, said in a radio interview Tuesday. A debt-to-gross-domestic-product ratio of 120% in 2020 is “a target that looks reasonable to me and that effectively allows bringing Greece into a sustainable pattern,” Pigasse, who leads Lazard’s sovereign advisory team, said on France Inter radio. “An effort is absolutely necessary” and negotiations are ongoing, he said, speaking in French.

European leaders on Monday urged Greek Prime Minister Alexis Tsipras to pare back his ambitions for easing the financial pressure on his people, saying they would go against the conditions attached to the country’s bailout. Greece’s public debt currently stands at more than €320 billion, or about 175% of GDP, making it Europe’s most-indebted state when measured against output. “It’s a negotiator’s position,” said Michel Martinez, an economist at SocGen in Paris. “A debt cut of this magnitude politically is very difficult, or even unacceptable. One should explain to German and French taxpayers that have lent to Greece that there will be losses,” Martinez said.

Canceling the debt isn’t the only option to reduce Greece’s debt-to-GDP ratio, and interest rate cuts and longer maturities are also possible, he said. Debt can be canceled, or reduced, in several ways, Lazard’s Pigasse said, without elaborating. “Greece is in a situation of financial distress, it knows a humanitarian crisis like Europe has not known since World War II,” Pigasse said. “The austerity cure that was imposed to Greece by what’s called the troika, which is the IMF, the ECB and European states has led to a true disaster.”

Find the common thread.

• Wednesday is Going to be Huge for Europe (Bloomberg)

[Today] sees two big meetings in Europe, the success or failure of which could have major repercussions for markets, and the European political landscape. In Minsk, Belarus, the leaders of Germany, France, Ukraine and Russia are due to meet to try to hammer out a peace agreement. Failure to reach an agreement will lead to further EU economic sanctions against Russia, which were delayed at yesterday’s EU foreign minister’s meeting meeting to allow time for the diplomatic offensive tomorrow. Failure would also make it easier for The United States to step up its plans to send lethal aid to Ukraine – plans that US president Barack Obama has not yet committed to. If the prospect of all out war on its eastern border is not enough for Europe to worry about, there is also the real prospect of a major sovereign debt blow-up on its southern border.

Tomorrow evening the finance ministers of the euro area meet to see if a new deal can be done for Greece. Greece is pushing for a €10 billion bridging loan to allow it avoid a funding crunch, while also giving the new Greek government time to come up with a new plan for the sustainability of Greek finances. So far Greek plans have met with very little support from other euro area finance ministers, with German’s Schaeuble saying that Greece must agree to a full plan, rather than a bridging loan, or commit to the existing bailout program. There are hints this morning that there may be some room to compromise on both sides ahead of the meeting tomorrow, but with both the Greeks and the other euro area finance minsters still seeming so far apart on the details, chances of failure are still high.

“Visually, he’s someone you could imagine starring in a film like ‘Die Hard 6’..”

• Germans Swoon Over Greek God, Yanis (Irish Ind.)

Greek Finance Minister Yanis Varoufakis has become an improbable heartthrob in Germany, where his charm and appearance have not gone unnoticed. ZDF television has even lampooned its own news anchor for enthusiastically comparing the minister with Hollywood tough guy Bruce Willis, while ‘Stern’ magazine published a gushing article on Varoufakis’s “classical masculinity”. “Varoufakis is without doubt a man full of charisma,” ZDF anchor Marietta Slomka said on air. “Visually, he’s someone you could imagine starring in a film like ‘Die Hard 6’ – he’s an interesting character.” Varoufakis’s casual appearance – and the fact that he does not tuck his shirts in and leaves their tops unbuttoned – was an unlikely focus of news reports in Germany. “What makes Yanis Varoufakis a sex icon” was a headline in the conservative newspaper ‘Die Welt’ while ‘Stern’ magazine wrote that Varoufakis’s appearance reminded Germans of a Greek hero in marble, even though media elsewhere in Europe say he looks more like a bouncer.

Bluster.

• Schaeuble Says ‘Over’ for Greece Unless Aid Program Accepted (Bloomberg)

German Finance Minister Wolfgang Schaeuble doused expectations of a positive outcome for Greece at an emergency meeting with its official creditors tomorrow, saying there are no plans to give the country more time. Speaking to reporters in Istanbul after a two-day meeting of finance chiefs from the Group of 20, Schaeuble said “it’s over” if Greece doesn’t want the final tranche of the current aid program. Greece’s creditors also “can’t negotiate about something new,” Schaeuble said. Greek government bonds had risen today for the first time in five days on optimism there might be room to move toward an agreement that will help ensure the nation isn’t left short of funds. That had come after Greece had offered compromises in a bid to push for a bridge plan to stave off a funding crunch and to buy time for negotiations to ease austerity demands.

Any accord, however, would require an easing of Germany’s stance in the standoff between Greece and its creditors over conditions attached to its €240 billion lifeline. An impasse risks leaving Greece without funding as of the end of this month, when its current bailout expires, and may put Europe’s most-indebted state’s euro membership in danger. Schaeuble damped expectations, saying euro region finance ministers meeting in Brussels tomorrow won’t negotiate a new program for the cash-strapped country as a program is already in place and was arrived at after “arduous” negotiations. He also said media reports that the European Commission will give Greece six more months to reach an aid deal “has to be wrong” because he’s not aware of such a plan and the commission isn’t in charge of making such decisions. Schaeuble said he had discussed the rules of the aid programs at a meeting with his Greek counterpart Yanis Varoufakis in Berlin last week.

Not a good tone to start a debate with: “A senior European official described the situation as “berserk” and said, “there is no plan.”

• EU-Greek Relations Soured by Leaks; Sides Further Apart (MNI)

The carefully orchestrated dance between the new Greek government and its European creditors appeared to crack Tuesday, with top Brussels officials infuriated by what they see as wildly misleading claims coming from Athens. Apparent claims from Athens officials to other governments and media suggesting that the U.S. Treasury supports a plan by the Syriza-led government to alleviate Greece’s debt, and that the European Commission president Jean-Claude Juncker either backed the plan or had an alternative himself, have enraged senior economic officials in Brussels. A senior European official, who spoke on condition of anonymity, described the situation as “berserk” and said, “there is no plan.” He added that the European Commission and U.S. Treasury were both perturbed at the way they had apparently been represented externally by Greek officials.

A team from the U.S. Treasury led by Daleep Singh, deputy assistant secretary for Europe & Eurasia, was in Athens late last week. “The Greeks are digging their own graves,” the EU official said. At the G-20 meeting in Istanbul Tuesday, the U.S. Treasury secretary Jack Lew said that Greece and its international creditors must find a pragmatic solution to that country’s debt crisis, adding that US officials would like to see rhetoric on the issue toned down. “I don’t think that there should be casual talk about the kind of resolution that would end up leaving Greece in a place that is unstable or the EU in a place that is unstable,” Lew said. Early Tuesday, Greece floated its latest funding plan via press leaks, including to the Kathimerini newspaper, proposing a bridge financing programme that would lead to a “new deal” with creditors from September onwards.

There were reportedly four parts to the new deal: 30% of the existing memorandum with the Troika will be cancelled and replaced with 10 new reforms agreed with the OECD; Greece’s primary surplus target would be cut from 3% of GDP this year to 1.49%; Greek debt would be reduced via an already announced swap plan; and the “humanitarian crisis” would be alleviated via policies announced by Prime Minister Alexis Tsipras Sunday. Putting aside frustrations about communications from Athens, initial reactions from Eurozone capitals to the ideas in the draft plan have not been positive.The first official described the plan as “hopeless” and added, “how can you have a plan when you make no payment obligation till the autumn and then you probably scrap that.”

Boy, would they be welcome: “German Finance Minister Wolfgang Schaeuble said he repeated his offer to send 500 German tax officials to Greece to tackle the problem..”

• Getting Rich Greeks to Pay Taxes Is Tsipras Biggest Test at Home (Bloomberg)

As Greek Prime Minister Alexis Tsipras goes into a Battle of the Titans with German Chancellor Angela Merkel, he may find he has as big a fight closer to home: taking on rich tax-evaders. People like Angeliki Katsarolia, a waitress at the Julia café lounge bar in the rundown neighborhood of Omonia in Athens, want to see him cast his net wide. Gesturing to a receipt for coffee curled up in a small glass on a recent afternoon, one of the few signs of success in five years of attempts to get Greeks to pay taxes, she said she’s doing her bit. “I pay my taxes straight from my wages,” said Katsarolia, 38, who gave up working in luxury hotels where her employers avoided paying her. “I can’t accept that big employers aren’t taxed. They have to pay their taxes too.”

The age-old problem of getting more Greeks to pay their taxes adds pressure on Tsipras, who’s trying to convince Merkel and other euro-area partners he can put his fiscal house in order while raising wages and reinstating government workers. He wants his official creditors to ease the austerity demands that have helped wipe out a quarter of gross domestic product since the start of the crisis. His election pledge to snag Greeks who under-pay or don’t pay their taxes is key both to his rise to power and to his staying there. Germany, the largest holder of Greek debt among euro-area countries and vital to any compromise that will keep Greece in the euro, remains skeptical. German Finance Minister Wolfgang Schaeuble, meeting his Greek counterpart Yanis Varoufakis in Berlin last week, said he repeated his offer to send 500 German tax officials to Greece to tackle the problem, an offer that has not yet been taken up.

“We can well understand and support it that the wealthy in Greece must also contribute, that the tax base gets broadened and the efficiency of tax administration is improved, that corruption is fought energetically,” Schaeuble said. Greek wage-earners and pensioners have suffered punishing taxes to plug a yawning budget deficit revealed in 2009 in five years of an overhaul of Greek taxes that the International Monetary Fund, one of Greece’s lenders, said could have been more fairly distributed. Just a day after Tsipras’s election on Jan. 25, figures from the finance ministry showed that revenue for the government last year amounted to €51.4 billion, lower than a €55.3 billion target, in part due to a €1.4 billion shortfall in tax revenue. “The great struggle is the struggle against tax evasion, which is the real reason our country reached the brink,” Tsipras said in parliament on Feb. 8. “The new government guarantees that in this country justice will be served.”

“..a law allowing SDOE to rubber-stamp the imposition of tax rather than having to pass it over to tax offices, which often lack the resources to follow up..”

• Greece To Collect €2.5 Billion From Tax Evaders ‘Straight Away’ (Kathimerini)

The strengthening of the Financial Crimes Squad (SDOE) will lead to Greece immediately collecting €2.5 billion from tax evaders, State Minister for Combating Corruption Panayiotis Nikoloudis said Tuesday. Nikoloudis, the former head of the anti-money laundering authority, said the government would pass a law allowing SDOE to rubber-stamp the imposition of tax rather than having to pass it over to tax offices, which often lack the resources to follow up. He said there are currently some 3,500 cases of tax evasion, totaling €7 billion, which have been unearthed by authorities but the state has yet to collect the taxes due. He said that €2.5 billion of this total could be retrieved straight away.

The view from Berlin.

• Greece Inches Closer to Renewal of Debt Crisis (Spiegel)

After new Greek Finance Minister Giannis Varoufakis had been repeatedly rebuffed on his introductory tour of European capitals, he opted for flattery and solicitation during his visit to Berlin last week. German Finance Minister Wolfgang Schäuble, Varoufakis said, had been an object of his admiration since way back in the 1980s for his dedication to Europe. He said that his host’s career, focused as it has always been on European unity, has been impressive. Varoufakis went on to say that Germans and Greeks are linked by their experiences of suffering. Just like the Germans, who were yoked with the burdensome Versailles Treaty after losing World War I, his country too has been humiliated by agreements forced onto it from the outside.

Both countries, he said, suffered from deflation and economic depression, the Germans in the 1930s and the Greeks today. “The Germans understand best how the Greeks are doing,” Varoufakis said. Schäuble’s sympathy for Varoufakis’ plight was limited. Indeed, the German finance minister sees Greek demands for an end to the troika and for a renegotiation of previous agreements as an affront. “We agreed to disagree,” is how Schäuble summed up their meeting, a tête-à-tête that took 45 minutes longer than the one hour that had been scheduled.

Just one day prior to his meeting with Schäuble last Thursday, Varoufakis had been given the cold shoulder at European Central Bank headquarters in Frankfurt. ECB head Mario Draghi rejected virtually all of Varoufakis’ requests, including his demand for more leniency on debt repayments. That evening, the ECB opted to stop accepting Greek government bonds as collateral, a move which will make it even more difficult for banks in Greece to access liquidity. The move came as a surprise to Varoufakis. Draghi had told him nothing about it during their meeting that morning.

“If Greece declines Germany’s offer of national humiliation, and the other EU governments follow through on Schaeuble’s threat, Greece will have no recourse but to default..”

• Meet Greece Halfway, Europe (Bloomberg Ed.)

Varoufakis wants a bridge loan while talks take place on the consolidation of Greece’s enormous external debts. So far, the rest of the euro area has said, “No way.” Greece’s initial position deserved a stone-faced response because it seemed to allow for no compromise: Greece’s debts would have to be partly written off, whether Europe liked it or not. But on his tour of EU capitals last week, Varoufakis climbed a long way down from that. He now says Greece wants not outright forgiveness but further debt restructuring, including a swap into debts with repayment linked to growth rates. Rather than refusing to have policy conditions tied to the new deal, he’s indicating that many of the reforms bundled into the existing bailout program will stay in place, together with some new ones.

These proposals aren’t as bad as the initial pitch would have led you to expect. Actually, they make a lot of sense. The existing bailout program is widely recognized to have failed: It imposed too much austerity, flattened the economy and, as a result, failed to get the ratio of debt to national income under control. Right or wrong, Greece’s modified position should be seen, at the very least, as a basis for negotiation. Yet some EU governments, and Germany’s especially, are refusing to budge. There’s nothing to talk about, they say. On Tuesday, German Finance Minister Wolfgang Schaeuble ominously pronounced that if Greece doesn’t want the final tranche of the bailout program, “it’s over.” Greece’s creditors “can’t negotiate about something new,” he added. Why on earth not?

Missed targets, failed programs and renegotiated agreements aren’t exactly unheard of in the EU: A cynic might call that sequence standard operating procedure. It seems perverse bordering on deranged to try to break this habit at the very moment when a sudden commitment to unwavering rigidity threatens the survival of the euro system. Taken at his word, Schaeuble is telling Greece that nothing short of unconditional surrender will do. What are Greek voters, rallying behind their new government, to make of that? If Greece declines Germany’s offer of national humiliation, and the other EU governments follow through on Schaeuble’s threat, Greece will have no recourse but to default and, in all likelihood, to impose capital controls as a prelude to exit from the euro system. EU creditors will be worse off than if they’d come to an accommodation – and possibly much worse off, if the collateral damage from a Greek exit can’t be contained.

Power struggle in the EU.

• EC President Juncker Poses Challenge To Merkel And Austerity Policies (Spiegel)

Jean-Claude Juncker deliberately chose to deliver his warning in German. “Commissioners are proposed by the member states, but they do not represent the interests of their member state,” the newly appointed president of the European Commission said as he introduced his team last September. In the event a commissioner confused “national and European policies,” he threatened, he would move that appointee to another portfolio. Germany’s Commissioner Günther Oettinger paid little heed to the warning. On Jan. 8, he met in Hamburg with German Chancellor Angela Merkel and Finance Minister Wolfgang Schäuble to warn them that Juncker was planning to loosen the rules of the Stability Pact for the common currency zone. The three quickly agreed at the meeting that the development would not be in Germany’s interest, and they agreed to thwart Juncker’s plans.
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It had been clear for some time that Europe’s most powerful leader would eventually clash with the head of the European Commission, the EU’s executive, but it happened earlier than some might have expected. Juncker’s commission hasn’t even been in office for 100 days yet and conflicts between Berlin and Brussels are already surfacing. Policy differences are at the forefront, with Juncker feeling that Merkel has bound Europe to austerity policies for too long. But the conflict also touches on a more fundamental question: Who holds the power in Europe?Merkel’s ascendency to the most powerful woman in Europe is rooted to a large degree in the euro crisis, which shifted the balance of power from the European Commission to the European Council, the body representing the leaders of the 28 member states.

As the crisis heated up, leaders gathered regularly to hold crisis summits under the auspices of the European Council in order to save the common currency from collapse. The decisions fell to the European Council because it was European leaders who had to make money available for the bailout packages. Given that Germany had the most money to offer, Merkel quickly became the most important player. Juncker now wants to level the playing field again. He’s the first Commission president to have campaigned as a leading candidate in European Parliament elections to head the commission, and he sees his rebellion against Merkel as an act of emancipation. He believes that the man backed by European Parliament should be at the European helm rather than the woman backed by money.

“Insofar as the SNB decision was dictated by concern about the risk of losses from continued expansion of its balance sheet, it highlights the limit to central bank actions.”

• This Single Currency Move Pressures The Entire Eurozone (Das)

A more serious problem will be externally induced deflationary forces, which will affect the Swiss economy through the stronger currency. It will accelerate deflationary pressures, expected to reach as much as negative 2% to 3%. This will create problems for both asset prices and the increased levels of debt. The Swiss are already being forced to contemplate measures such as capital inflow controls to minimize further pressure on the currency. But the biggest ramifications of the abandonment of the ceiling will be felt outside Switzerland. First, the move opens a new front in the currency wars. There will be pressure on other currencies. Following the Swiss decision, the Danish central bank has cut interest rates three times in a few weeks to a record low, from minus 0.05% to minus 0.75%.

This was designed to discourage capital inflows and due to speculation that Denmark would be forced to discontinue its peg to the euro. It also increases speculation on the sustainability of the euro itself. The Swiss decision will drive reductions in interest rates and currency devaluations as nations seek to preserve competitiveness and limit unstable capital movements. The Swiss National Bank set an interest rate on sight deposit accounts of minus 0.75%, well below the minus 0.25% previously assumed to be the effective lower-bound on interest rates. Other countries may be forced to follow, sending global interest rates even lower. This may exacerbate asset price bubbles, increasing the risk of future financial system problems.

Second, the Swiss now have drawn attention to the ability of central banks to intervene in and control market prices. Given assurances from the Swiss National Bank (SNB) in late 2014 about the continuation of the ceiling, the change in policy reduces trust in central banks’ forward guidance. Insofar as the SNB decision was dictated by concern about the risk of losses from continued expansion of its balance sheet, it highlights the limit to central bank actions. Central banks can operate without conventional capital, creating reserves and printing money. However, a large loss may affect a bank’s credibility and ability to perform its functions and implement policies. It may also affect market acceptance of the currency. This means that it would require recapitalization by governments, which would draw political attention to the issue.

Where commodities go to die. Grow your own!

• US Farmers Watch $100 Billion-a-Year Profit Fade Away (Bloomberg)

The squeeze on U.S. farmers is getting worse as low crop prices and rising costs erode incomes that not long ago were the highest ever. Illinois grower Jason Lay said he will buy 30% less fertilizer for his 2,500 acres of corn and soybeans, and 7% fewer seeds for spring planting. After his most profitable year ever in 2012, Lay said he upgraded his combine, tractor, sprayer and planter. With crop futures now near five-year lows, he has no plans to buy any new equipment. “You spend when times are prosperous so you don’t need to when they’re not,” Lay, 41, said by telephone from outside Bloomington, Illinois. “That’s how you make it through.” He estimates his profit is down by a quarter from its peak. Farm income in the U.S., the world’s top agricultural producer and exporter, is poised to drop for a third straight year in 2015.

While raising livestock remains profitable, as tight meat supplies keep prices high, growers of corn, soybeans and wheat saw crop and land values fall faster than many of their costs. That’s pinching sales for equipment maker Deere and seed and chemical producers including DuPont. “The budget picture for corn and soybeans is as negative as we’ve seen in a long time,” said Brent Gloy at Purdue University in Indiana. “You will see some farmers not able to cover their production costs.” The U.S. Department of Agriculture, in a report today at 11 a.m. in Washington, probably will forecast 2015 net-cash income from all farm activity at below $100 billion, which would be the lowest since 2010, Gloy said.

Last year, cash income dropped 17.5% to $108.2 billion, as expenses jumped to a record $370 billion and crop receipts tumbled 11.5%, USDA data show. Even a 14% increase in livestock receipts, which topped crop revenue for the first time in eight years, wasn’t enough to prevent a 2014 decline in overall farm profit. The agriculture industry has boomed over the past decade as record land and crop prices boosted sales of seed and farm equipment. Net net-cash income touched a record $137.1 billion in 2012. Land values have kept rising, up 8.1% last year to an all-time high of $2,950 an acre, while beef and pork prices were the highest ever.

Duh!

• Moody’s: Lower Oil Prices Won’t Boost Global Growth In Next 2 Years (MW)

Amid a death spiral for oil prices, a comfort in some corners has been the belief that lower energy prices will be a boon for global growth. Wrong, according to Moody’s Investors Service, which said Wednesday the pain of lower oil prices won’t result in any boost to global growth over the next two years, due to headwinds from the euro area, China, Japan and Russia. The only beneficiaries? The U.S. and India. Backing what plenty of economists have been saying, Moody’s said indeed, lower oil prices will give a lift to U.S. consumer and corporate spending over the next two years. The ratings service lifted its U.S. forecast for 2015 growth in GDP to 3.2%, from 3% in its last quarterly report. For 2016, it should stay strong at 2.8%, said Moody’s.

But for the Group of 20 countries as a whole, Moody’s expects growth of just under 3% for 2015 and 2016, mostly unchanged from 2014. That’s based on the assumption that Brent crude prices will average $55 a barrel this year, and rise to $65 in 2016. Moody’s expects oil prices will stick to current levels in 2015, because demand and supply issues won’t dramatically change in the near term. Where oil isn’t going to help much is in the eurozone. Moody’s is forecasting its GDP to increase just under 1% in 2015 — not much change from 2014 — and 1.3% in 2016.

You betcha.

• World’s Biggest Oil Trader Warns Crude Prices Could Dive Again (Bloomberg)

The world’s biggest independent oil trader said crude could resume a slump that saw prices fall 61% between June and January, as unrelenting growth in U.S. output leads to a “dramatic” build in the nation’s stockpiles. The oil market seems slightly oversupplied and another downward move is possible in the first half of this year, Ian Taylor, chief executive officer of Vitol Group, said Tuesday. There are no signs of slowing U.S. output even as the country’s drillers idle rigs, he said. Oil inventories in industrialized nations may climb near a record 2.83 billion barrels by the middle of the year because supplies remain abundant, the International Energy Agency said in a report.

Brent crude, a global benchmark, has rallied 29% from its low point this year. It’s still down by half from last year’s peak as the U.S. pumps the most oil in three decades and OPEC responds by maintaining its own output to keep market share. While companies have pulled rigs off oil fields and cut billions of dollars of planned spending, it will be some time before there is an impact on production, according to the IEA. “The market looks a little bit long in the first half of the year,” Taylor said in an interview at a conference in London. “We think there are going to be quite dramatic builds in stock for the next few months” before the market moves into balance in the second half.

The IEA, a Paris-based adviser to 29 nations, cut its forecast for oil-supply growth from nations outside the Organization of Petroleum Exporting Countries for a second consecutive month Tuesday, citing cuts in company spending. Production will increase by 800,000 barrels a day this year, the slowest rate expansion since 2012 and down from an estimate of 1.3 million a day in December. “Extreme cuts in investment in output now could lead to an oil deficit by the fourth quarter,” Igor Sechin, chief executive of Russia’s largest oil producer OAO Rosneft, said in a speech at the London conference.

“For the Saudis, it’s market share at any cost. Saudi is the leader in this and the others have to follow the leader.”

• OPEC Producers Cut Oil Prices to Asia in Battle for Market Share (Bloomberg)

Iraq and Iran joined Saudi Arabia in cutting their March crude prices for Asia to the lowest level in more than a decade, signaling the battle for a share of OPEC’s largest market is intensifying. Iraq’s Basrah Light crude will sell at $4.10 a barrel below Middle East benchmarks, the lowest since at least August 2003, the Oil Marketing Co. said Tuesday. National Iranian Oil lowered its official selling price for March Light crude sales to a discount of $2.10 a barrel, the lowest since at least March 2000, according to a company official who asked not to be identified because of corporate policy.

The cuts come after Saudi Arabia, the largest crude exporter, reduced pricing to Asia last week to the lowest in at least 14 years. OPEC left its members’ output targets unchanged at a November meeting, choosing to compete for market share against U.S. shale producers rather than support prices. Iraq is the second-biggest producer in OPEC and Iran is fourth. “This is an effort by some producers to protect market share,” Sarah Emerson, managing principal of ESAI Energy Inc., a consulting company in Wakefield, Massachusetts, said by phone Tuesday. “It’s really straightforward; cutting prices is how you keep your foot in the door.”

Middle Eastern producers are increasingly competing with cargoes from Latin America, Africa and Russia for buyers in Asia. Oil prices have dropped about 45% in the past six months as production from the U.S. and OPEC surged. The International Energy Agency said Tuesday that the U.S. will contribute most to global growth in oil supplies through 2020 as OPEC’s attempts to defend its market share will hurt other suppliers including Russia more. “If they go out and sell at a higher price, they won’t sell much,” John Sfakianakis, Middle East director at Ashmore, a London-based investment manager, said in an interview in Dubai Tuesday. “For the Saudis, it’s market share at any cost. Saudi is the leader in this and the others have to follow the leader.”

“Kotsaba’s particular crime, according to prosecutors, was in describing the conflict as a civil war rather than a Russian “invasion.”

• Ukrainians Rage Against Military Draft: “We’re Sick Of This War” (Antiwar.com)

When Ukrainian army officers came to the Ukrainian village of Velikaya Znamenka to tell the men to prepare to be drafted, they weren’t prepared for what happened next. As the commanding officer was speaking, a woman seized the microphone and proceeded to tell him off: “We’re sick of this war! Our husbands and sons aren’t going anywhere!” She then launched into a passionate speech, denouncing the war, and the coup leaders in Kiev, to the cheers of the crowd. What she did is now a crime in Ukraine: the only reason she wasn’t arrested on the spot is that the villagers wouldn’t have permitted it. But in Ukrainian Transcarpathia, well-known journalist for Ukrainian Channel 112 Ruslan Kotsaba has been arrested and charged with “treason” and “espionage” for making a video in which he declared: “I would rather sit in jail for three to five years than go to the east to kill my Ukrainian brothers. This fear-mongering must be stopped.”

Kotsaba may sit in jail for twenty-three years, the prescribed term for the charges filed against him. Kotsaba’s arrest is part of a desperate effort by the Ukrainian government to intimidate the growing antiwar and anti-draft movement, which threatens to upend Kiev’s dreams of conquering the rebellious eastern provinces. Kotsaba’s particular crime, according to prosecutors, was in describing the conflict as a civil war rather than a Russian “invasion.” This is a point the authorities cannot tolerate: the same meme being relentlessly broadcast by the Western media – that an indigenous rebellion with substantial support is really a Russian plot to “subvert” Ukraine and reestablish the Warsaw Pact – now has the force of law in Ukraine. Anyone who contradicts it is subject to arrest.

Also subject to arrest, and worse: the thousands who are fleeing the country in order to avoid being conscripted into the military. In a Facebook post that was quickly deleted, Defense Minister Stepan Poltorak wrote: “According to unofficial sources, hostels and motels in border regions of neighboring Romania are completely filled with draft dodgers.” President Petro Poroshenko, the Chocolate Oligarch, is readying a decree imposing possible restrictions on foreign travel for those of draft age – which means anyone from age 25 to 60. Ukrainians may soon be prisoners in their own country – but they aren’t taking it lying down.

Draft resistance is at an all-time high: a mere 6% of those called up have reported voluntarily. This has forced the Kiev authorities to go knocking on doors – where they are met either with a mass of angry villagers, who refuse to let them take anyone, or else ghost towns where virtually everyone has fled.[..] The frantic Ukrainian regime is now contemplating conscripting women over 20.

Debt Rattle February 6 2015

Feb 062015

February 6, 2015 Posted by Raúl Ilargi Meijer at 11:44 am Finance Tagged with: Abenomics, debt write-off, deflation, Germany, Greece, Lazard, oil, stocks, Syriza, Venezuela 1 Response »

DPC Chamber of Commerce, Boston MA 1904

• Deflation Risk in U.S. Seen Rivaling Euro Area (Bloomberg)

• Stocks Will Be ‘Ripped To Smithereens’: Albert Edwards (CNBC)

• Oil Heading For $30, Currency War Coming (CNBC)

• Is China Preparing for Currency War? (Pesek)

• China’s Monumental Debt Trap – Why It Will Rock The Global Economy (Stockman)

• Conquering China’s Mountain of Debt (Bloomberg)

• The Debt Write-off Behind Germany’s ‘Economic Miracle’ (France24)

• Why Deutsche Bank Thinks Europe Will Fold (Zero Hedge)

• Time for #GreekLivesMatter (Naked Capitalism)

• Greek Leaders Return Home for Rethink After Rebuff From Germany (Bloomberg)

• ECB Said to Allow Greek Banks €59.5 Billion Emergency Cash (Bloomberg)

• Greek Debt Drama Is ‘Theater,’ But Stakes Are High (CNBC)

• Greece and Varoufakis Need Supporters Not Sympathisers (Guardian)

• The Lazard Banker Shaping Greece’s and Ukraine’s Financial Fate (WSJ)

• Banker to the Broke: Lazard Advises Greece, Ukraine (Bloomberg)

• Abenomics Leaves Japan’s Poor and Elderly Behind (Bloomberg)

• Is Denmark Facing A Speculative Attack? (CNBC)

• Australia Central Bank Acting Like It ‘Just Woke Up’ (CNBC)

• Oz PM Abbott Fights for Political Life as Colleagues Seek Ouster (Bloomberg)

• Venezuela Oil Deal Hits Caribbean Hard (CNBC)

• John Kerry Rated Worst Secretary Of State In 50 Years (MarketWatch)

“The scales will soon lift from the market’s eyes.”

• Deflation Risk in U.S. Seen Rivaling Euro Area (Bloomberg)

Deflation would be as much of an issue for the U.S. as it is for the euro region if consumer prices were tracked the same way, according to Albert Edwards, a global strategist at Societe Generale SA. The Chart Of The Day helps illustrate how Edwards drew his conclusion, presented in a report yesterday. He tracked changes in the core U.S. consumer-price index, which excludes food and energy, and the CPI for shelter. Core inflation in December was 1.6%, according to the Labor Department. That’s 0.9 percentage point more than the euro region’s comparable figure, as compiled by Eurostat. This gap disappears after bringing the U.S. figure into line with Eurostat’s definition of housing, Edwards wrote.

“The deflationary fault line on which the U.S. sits is every bit as precarious as that of the euro zone, but is being disguised,” the London-based strategist wrote. “The scales will soon lift from the market’s eyes.” Ten-year Treasury notes are headed for yields of less than 1% as the deflation threat grows, according to Edwards. The yield stood at 1.81% yesterday after ending last month at 1.64%. The adjusted U.S. data exclude owners’ equivalent rent, or the estimated cost borne by homeowners who live in their houses as opposed to renting them out. The euro region doesn’t have a similar category.

“U.S. numbers differ because they are measured with “shelter inflation” which is derived from housing costs based on rent, not the price of homes.”

• Stocks Will Be ‘Ripped To Smithereens’: Albert Edwards (CNBC)

Societe Generale’s notoriously bearish strategist, Albert Edwards, has warned that the deflation threat currently dogging the euro zone is greater in the U.S. and that equity markets will soon be “ripped to smithereens.” “The deflationary fault line on which the U.S. sits is every bit as precarious as that of the euro zone, but is being disguised,” he said in a new research note on Thursday. “The scales will soon lift from the market’s eyes.” Despite years of central bank easing, consumer price growth across the world has begun to stagnate with the euro zone recently falling into deflationary territory – when consumer price growth turns negative. An official flash figure for the 19-country region last week showed prices fell by 0.6% year-on-year in January.

Across the Atlantic, consumer prices increased 0.8% in the 12 months through December, the weakest reading since October 2009. The U.S. might be posting better figures than the euro zone, but Edwards argues that it’s not a like-for-like comparison. “My former esteemed colleagues Marchel Alexandrovich and David Owen pointed out to me that if U.S. core CPI (consumer price index) is measured in a similar way to the euro zone, then U.S. core CPI inflation is already ‘pari passu’ (on an equal footing) with the euro zone despite the former having enjoyed a much stronger economy,” he said. He adds that U.S. numbers differ because they are measured with “shelter inflation” which is derived from housing costs based on rent, not the price of homes.

This has been preventing U.S. core CPI from falling away sharply, to the extent that it has in the euro zone, according to Edwards. With this warning, Edwards now believes that there is “ample room” for global yields to fall further over the next two years. He believes that market participants will see sub-1% yields on the U.S. 10-year sovereign, down from its current level of 1.8015%. Edwards regularly touts the idea of an economic “Ice Age” in which equities will collapse because of global deflationary pressures. On Thursday he maintained his view that equities are likely to fall below 2009 lows. “I remain confident that the global equity markets will be ripped to smithereens in the next economic downturn which will, once again, show that the central banks have inflated another massive unstable financial bubble,” he said. “The market is far too convinced that the U.S. is in the spring of its economic recovery, whereas I believe we could well be in the autumn.”

“Kilduff said that the industry had merely gotten rid of “the runts of the litter..”

• Oil Heading For $30, Currency War Coming (CNBC)

So much for the rally. Oil will likely still head as low as $30, analyst John Kilduff told CNBC on Thursday. “I still believe we’re going to go to that $30 to $33 area, which is the low point from the financial crisis in 2008, 2009. What you saw over the past several days was technical in nature, a short squeeze. This volatility is a little crazy and I think that $30 target is a downside target is for technicians that are in this market,” the founding partner of Again Capital said in a “Squawk Box” interview. U.S. crude tumbled 9% on Wednesday to settle at $48.45, erasing nearly all of its gains in the previous two sessions. The benchmark commodity – West Texas Intermediate – had soared 22% from a nearly six-year low of $43.58 last Thursday, ending the day at $53.05 on Tuesday.

The rally’s sharp reversal spilled over into the stock market, with energy stocks leading the day’s decline in the S&P 500. Data on Friday that showed exploration and production companies had shut down 90 rigs in the prior week boosted the rally. Kilduff said that the industry had merely gotten rid of “the runts of the litter,” noting that U.S. production had not fallen and still stands at 9.1 million barrels a day. He said speculation that Saudi Arabia, the world’s largest oil exporter, would agree to production cuts in order to reach a deal with Russia on the Syrian conflict also sent oil higher.

It has no choice.

• Is China Preparing for Currency War? (Pesek)

China has entered the global monetary-easing fray, along with more than a dozen other economies, after its central bank surprised investors by cutting reserve requirements 50 basis points to spur lending and combat deflation. But Beijing may be raring for an even bigger and more perilous fight – in the currency markets. Reducing the amount of cash that banks are required to set aside (to 19.5%), as China has just done, is largely symbolic – a don’t-panic-we’re-on-top-of-things reassurance to international markets and local property developers. Still, the move is also an inflection point. China is in all likelihood about to loosen monetary policy considerably to support economic growth. If global conditions worsen, China’s one-year lending rate, now at 5.6%, could head toward zero.

At the same time, something else is afoot in Beijing could have even greater global impact. The central bank is cooking up measures to widen the band in which its currency trades. People’s Bank of China officials say it’s about limiting volatility as capital zooms in and out of the economy. Let’s call it what it really is: the first step toward yuan depreciation and currency war. As China grapples with its slowest growth in 24 years, President Xi Jinping is under pressure to stimulate the economy. Yet that would run afoul of his pledges to curb runaway debt and credit (the latter jumped about $20 trillion from 2009 to 2014). What better way to gin up growth without adding to China’s bubbles than by sharply weakening the exchange rate?

A cheaper yuan would boost exports and buy Xi more time to recalibrate growth engines away from excessive investment and debt. “The real economy desperately needs a weaker yuan,” says economist Diana Choyleva of Lombard Street Research. The question is, does the rest of the world? Any significant drop in the yuan would prompt Japan to unleash another quantitative-easing blitz. The same goes for South Korea, whose exports are already hurting. Singapore might feel compelled to expand upon last week’s move to weaken its dollar. Before long, officials in Bangkok, Hanoi, Jakarta, Manila, Taipei and even Latin America might act to protect their economies’ competitiveness.

David Stockman sent me a mail last night pointing out we had written on the same topic yesterday: “Perhaps there truly is such a thing as “great minds thinking”………..etc.” My inevitable reply: “That IS funny, yeah. You’ll never see me thinking of myself as a great mind, though (you, different story altogether), I’m just an outsider describing the crash to all the other outsiders.” See also: Debt In The Time Of Wall Street.

• China’s Monumental Debt Trap – Why It Will Rock The Global Economy (Stockman)

Bloomberg News finally did something useful this morning by publishing some startling graphs from McKinsey’s latest update on the worldwide debt tsunami. If you don’t mind a tad of rounding, the planetary debt total now stands at $200 trillion compared to world GDP of just $70 trillion. The implied 2.9X global leverage ratio is daunting in itself. But now would be an excellent time to recall the lessons of Greece because the true implications are far more ominous. Today’s raging crisis in Greece was hidden from view for many years in the run-up to its first EU bailout in 2010 because the denominator of its reported leverage ratio – national income or GDP – was artificially inflated by the debt fueled boom underway in its economy.

In other words, it was caught in a feedback loop. The more it borrowed to finance government deficit spending and business investment, whether profitable or not, the more its Keynesian macro metrics – that is, GDP accounts based on spending, not real wealth—-registered a falsely rising level of prosperity and capacity to carry its ballooning debt. Five years later, of course, the picture is much different. Greece’s GDP has now shrunk by more than 25%. The abysmal picture depicted in the graph below explains what really happened. Namely, that the bloated denominator of GDP came crashing back to earth, exposing that Greece’s true leverage was dramatically higher than the 100% ratio reported in the years before the crisis.

“They receive only about half of China’s total tax revenue, while they must pay for 80% of all government expenses..”

• Conquering China’s Mountain of Debt (Bloomberg)

Close the back door, open the front door. That s the official slogan used to describe China s most ambitious reform of government finances in two decades, to be introduced later in 2015. The aim is to wean badly indebted local governments tens of thousands of cities, counties, and townships off their dangerous reliance on off-balance-sheet financing and backdoor borrowing, from both banks and the unregulated shadow finance sector. Funds to support China s rapid urbanization to build infrastructure, keep pension programs solvent, and more will come from a vastly expanded, newly legalized local bond market.

The development of a local bond market is a real milestone, says Debra Roane, senior credit officer at Moody’s Investors Service. Once local governments start issuing debt in their own name, it will be clear that they are responsible for it, and that will ultimately lead to more prudent decision- making. They will stay away from riskier projects. Ever since China’s last major fiscal reform in the mid-1990s, when then-Vice Premier Zhu Rongji restored control of public finances to the national government, local governments have faced a dilemma. They receive only about half of China’s total tax revenue, while they must pay for 80% of all government expenses, including schools, roads, and health care. The local governments are banned from borrowing directly from banks and from issuing bonds.

As a result, a vast, unregulated industry has sprung up in what many call local government finance vehicles. Some 10,000 of these for-profit finance companies raise funds for local needs. They also have enabled local authorities to commit acts of apparent folly. The finance companies, with the implicit backing of local governments, bankrolled entire new city districts that now sit largely empty. This has led to a very opaque and risky situation, with unclear accountability, Roane says. It s not clear who is responsible for all this debt. China’s officially stated deficit is about 2% of its gross domestic product. That’s a fiction, says Chen Long, China economist at researcher GavekalDragonomics in Beijing, because it doesn’t include any of this indirect local borrowing. Add it in and the deficit rises to about 5% of GDP, Chen estimates. The National Audit Office found that as of 18 months ago, local debt including indirect borrowing totaled 17.9 trillion yuan ($2.86 trillion), up 63% since the end of 2010, much more than the 40% expansion of the economy.

As Tsipras said (paraphrased) : “And we didn’t even kill anyone”.

• The Debt Write-off Behind Germany’s ‘Economic Miracle’ (France24)

When discussing Greece’s whopping $310 billion debt, the country’s new Prime Minister Alexis Tsipras likes to recall a time when Europe’s great debt offender was not Greece, but Germany, today’s paragon of fiscal responsibility. The leader of the radical-left Syriza party refers in particular to an international conference held in London in 1953, during which West Germany secured a write-off of more than 50% of debt, accumulated after two world wars. Back then, with memories of Nazi atrocities still fresh, many countries were reluctant to offer such generous debt relief. But the US persuaded its European allies, including Greece, to relinquish debt repayments and reparations in order to build a stable and prosperous Western Europe that could contain the threat from Soviet Russia.

“Tsipras is right to remind Germans how well they were treated, with both debt relief and money from the Marshall Plan,” says Professor Stephany Griffith-Jones, an economist at Columbia University, referring to the US programme to help rebuild European economies after World War II. She believes Greece is justified in demanding a more generous approach from its creditors, despite obvious differences between its current plight and that of war-ravaged Germany. “In fact, Greece’s situation is perhaps more urgent because the pressure from markets and the financial sector is so much stronger than in the 1950s,” she says.

West Germany’s debt at the time was well below the levels seen in Greece today. But German negotiators successfully argued that it would hinder efforts to rebuild the country’s economy – much as Greek governments have in recent years, in vain. Under a crucial term of the London Agreement, repayments of the remaining debt were made conditional on West Germany running a trade surplus. In other words, the German government would only pay back its creditors when it could afford to – and not by borrowing even more money. Reimbursements were also limited to 3% of export earnings. This gave Germany’s creditors an incentive to import German goods so they would later get their money back, thereby laying the foundations of the country’s powerful export sector and fostering its so-called “economic miracle”.

“Germany’s resurgence has only been possible through waiving extensive debt payments and stopping reparations to its World War II victims,” economic historian Albrecht Ritschl told Der Spiegel in 2011, describing Germany as “the biggest debt transgressor” of the past century. “During the 20th century, Germany was responsible for what were the biggest national bankruptcies in recent history,” Ritschl said, pointing to the collapse of the German economy in the early 1930s, which sent shockwaves through global markets. “It is only thanks to the United States, which sacrificed vast amounts of money after both World War I and World War II, that Germany is financially stable today and holds the status of Europe’s headmaster. That fact, unfortunately, often seems to be forgotten.”

“If DB is right, and if Europe folds, the question then is what concessions will the ECB and the Eurozone be prepared to give to Italy, Spain and all the other nations where anti-European sentiment has been on a tear..”

• Why Deutsche Bank Thinks Europe Will Fold (Zero Hedge)

The Greek situation summaries Greece by Deutsche Bank’s George Saravelos have consistently been among the best in the entire sellside. His latest Greek update, which is a must read for anyone who hasn’t been following the fluid developments out of southeast Europe, which fluctuate not on an hourly but on a minute basis, does not disappoint. But while his summary of events is great, what is of far greater significance is his conclusion, namely that ultimately Europe will fold: “we consider the most likely outcome to be a Eurogroup offer of a new Third program” and “given that the current program expires this February the offer to negotiate a new Third program may provide political room for the government to sit on the negotiating table.

At the same time such an offer is very likely to be attached to strict conditions, with the willingness to accommodate t-bill issuance an open question. Developments overnight suggest that this has become less likely, imposing maximum pressure on the government to reach agreement within a matter of weeks.” If DB is right, and if Europe folds, the question then is what concessions will the ECB and the Eurozone be prepared to give to Italy, Spain and all the other nations where anti-European sentiment has been on a tear in recent months, and especially in the aftermath of Syriza’s stunning victory.

From Deutsche Bank: Greek Update

Over the last couple of weeks we have framed developments in Greece around three questions:
• First, under what conditions would the Troika be willing to continue negotiating with Greece?
• Second, does the Greek government accept these conditions?
• Third, how does the ECB link Greek bank financing to program negotiation?

“The ECB’s kneecapping of Greece demonstrates how central banks act as powerful enforcers on behalf of lenders and investors. The ECB operates with no concern that it will be reined in by democratic governments..”

• Time for #GreekLivesMatter (Naked Capitalism)

If you are not part of the solution, you are part of the problem. The Troika’s willingness to turn Greece into a failed state first, as a side effect of its “rescue the French and German banks” operation, and now, as part of its German hegemony protection racket, is killing people and in the longer term will only accelerate the rise of extreme right wing elements in the Eurozone. As Ilargi wrote last week:

In what universe is it a good thing to have over half of the young people in entire countries without work, without prospects, without a future? And then when they stand up and complain, threaten them with worse? How can that possibly be the best we can do? And how much worse would you like to make it? If a flood of suicides and miscarriages, plummeting birth rates and doctors turning tricks is not bad enough yet, what would be?

If you live in Germany or Finland, and it were indeed true that maintaining your present lifestyle depends on squeezing the population of Greece into utter misery, what would your response be? F##k ‘em? You know what, even if that were so, your nations have entered into a union with Greece (and Spain, and Portugal et al), and that means you can’t only reap the riches on your side and leave them with the bitter fruit.

[..] Please circulate this post widely and tweet it, using #GreekLivesMatter. If you live in a city where a central bank is located, get this idea in front of organizers. They can no doubt adapt and improve upon it. And above all, send it to all the Greeks you know, even those in Greece who might send it on to friends and family in the diaspora. If you are in the US, please contact your Congressman and express your dismay that the Fed is tacitly supporting the ECB in its reckless and destructive Eurozone policies and has the stature and the leverage to weigh in. Remember, many Republicans are as unhappy with the lack of transparency and undue concentration of power at the Fed. Even a small step supporting this effort is a step in the right direction.

“We didn’t even agree to disagree from where I’m standing..”

• Greek Leaders Return Home for Rethink After Rebuff From Germany (Bloomberg)

Prime Minister Alexis Tsipras is preparing to set out the most detailed account yet of his plans to revive the Greek economy after a diplomatic push ended with a rebuff from Germany and a warning shot from the ECB. Tsipras was greeted by the rare sight of a pro-government demonstration in downtown Athens on Thursday night after he vowed to stick to his anti-bailout campaign pledges, despite their rejection by German Finance Minister Wolfgang Schaeuble. The prime minister will lay out his policy plans on Sunday, in the opening speech of the three-day-long parliamentary debate leading up to a confidence vote to confirm his government.

Ministers met in Athens on Thursday to discuss the policy program and may reconvene on Saturday to assess Finance Minister Yanis Varoufakis’s feedback from his meeting with Schaeuble in Berlin. The first direct talks between Greece and Germany since Tsipras took power yielded no agreement on how to narrow their differences over Tsipras’s determination to end the German-led austerity regime. “We agreed to disagree” Schaeuble said after meeting Varoufakis on Thursday. “We didn’t even agree to disagree from where I’m standing,” the Greek responded.

A few hours before the Berlin encounter, the ECB heaped pressure on Tsipras by restricting Greek access to its direct liquidity lines, citing concerns about the country’s commitment to existing bailout pledges. The Greek government opted to “stop cooperating with the troika,” ECB Governing Council member Jens Weidmann said in a speech in Venice on Thursday. The move leaves Greek banks reliant on €59.5 billion of Emergency Liquidity Assistance, extended by the Bank of Greece, which is subject to review by the ECB Governing Council every two weeks. Undeterred by the ECB reaction, which triggered a sell-off in Greek bank shares, Tsipras told lawmakers from his party, Syriza, that he intends to stick to his campaign promises. “The government will negotiate hard for the first time in years, and will put a final end to the troika and its policies,” Tsipras said.

As Tsipras was speaking, hundreds gathered outside the parliament building to protest against the ECB’s decision, labeling it “blackmail.” Unlike the riots which rocked the Greek capital in 2011 and 2012, the march was peaceful and evening news bulletins dedicated more time to the fact that Syriza lawmakers opt not to wear ties than to the market declines, which saw bank stocks lose 10%. Sakellaridis said that Tsipras’s visits to Nicosia, Rome, Paris and Brussels this week had yielded results and the government isn’t alarmed about the potential impact of the ECB decision. Central bank governor Yannis Stournaras said the ECB decision “can be reversed” and the outflow of banking deposits is “under control.” “It was a very quiet day today,” he said, after meeting Deputy Prime Minister Yannis Dragasakis.

Allow?! If it walks feudal, and quacks feudal…

• ECB Said to Allow Greek Banks €59.5 Billion Emergency Cash (Bloomberg)

The European Central Bank will allow the Greek central bank to provide as much as €59.5 billion in emergency funding for the country’s lenders, a euro-area central-bank official familiar with the decision said. The measure is needed after the ECB shut off a key avenue for Greek banks’ funding on Wednesday, citing doubts that the country’s newly elected government will conclude its aid program. Greek stocks and bonds fell on Thursday after the ECB’s decision to end a waiver on the quality of Greek debt it accepts as collateral. The offer highlights how ECB officials are warning Greek politicians to keep to euro-area rules while striving to avoid a crisis in the financial system.

The ECB approved €50 billion in ELA as a replacement for its regular funding, plus an extra €9.5 billion, the official said, asking not to be identified because the proceedings aren’t public. German newspaper Die Welt reported earlier on Thursday that the ECB would allow the Greek central bank to offer about €60 billion in ELA. Under the measure, a nation’s central bank can provide liquidity to lenders at its own risk. The ECB will review ELA every two weeks to check whether the funds are being used in a way that doesn’t interfere with monetary policy. Should the ECB object, “the bank concerned cannot fund itself and that the bank concerned the same day or in the next couple of days would miss a payment and the counterpart will call a bankruptcy,” Governing Council member Klaas Knot said at the Dutch parliament in The Hague on Thursday. “So you have a credit event,” he said, while declining to comment specifically on Greece.

“Everyone wants to live in fairyland and none of us want to go back to real economies [..] This is nice theater, but it’s not going to solve anything.”

• Greek Debt Drama Is ‘Theater,’ But Stakes Are High (CNBC)

The ongoing drama surrounding Greece’s efforts to drum up support for a new debt deal is just “theater,” according to one analyst, who warned that Europe needs to wake up. Greek Finance Minister Yanis Varoufakis met his German counterpart Wolfgang Scheuble in Berlin on Thursday, after a week of travelling across Europe to try and bolster support for a new debt deal and bailout conditions. The talks were a mixed success, however, with Scheuble saying that the ministers had “agreed to disagree,” but Varoufakis denying that this was the case. Satyajit Das, author of “Traders, Guns & Money” told CNBC Friday that the talks were symptomatic of a “make-believe world.”

“Everyone wants to live in fairyland and none of us want to go back to real economies,” he said. “This is nice theater, but it’s not going to solve anything.” With no apparent progress over a debt deal for Greece, despite a week of high profile meetings between Varoufakis and Greek Prime Minister Alexis Tsipras and their fellow euro zone ministers, there is growing speculation over the eventual outcome. Das, an expert on financial derivatives and risk management, went on to stress that Greece’s “underlying dynamics” hadn’t changed. “They still can’t pay back their debt and we haven’t fixed anything. We still have to fix the basic economy,” he said. “The fundamental thing is that the Greeks want to be in the euro, they want to get this relief. The Germans want to save the German banks and the French want to save the French banks –they don’t want to have write-offs.” [..]

Panicos Demetriades, former governor of the Central Bank of Cyprus, told CNBC Friday that a “game of chicken” was being played out between the Greeks and Germans. And he added that an agreement over Greece was needed sooner rather than later in order to maintain confidence in the Greek financial system. “The Greeks have done everything possible to gain support for their positions, which are not unreasonable as the program doesn’t seem to be producing what was expected of it,” he told CNBC. “But they really don’t have the time that they think they do – that time isn’t there.” Demetriades, professor of financial economics at the University of Leicester, said that the ECB move was a symptom of deposit outflows in Greece. “Depositors are getting nervous. Even a small chance of the euro area breaking up would leave them in a mess,” he said. “It is important that the Greek government understands that if there is no agreement soon things will progressively get worse for them.”

“Varoufakis’s plea for “space for all of us to come to an agreement” sounds no more than common sense.”

• Greece and Varoufakis Need Supporters Not Sympathisers (Guardian)

What has Yanis Varoufakis, Greece’s finance minister, achieved during his grand tour of European capitals this week? Not much. He has collected a few rave reviews for his dress sense and sounded a model of sweet reasonableness in his press conferences. But on the substance? Yesterday in Berlin Wolfgang Schäuble, Germany’s finance minister, said Greece’s European partners had already gone as far as they would go on debt relief. He invited Athens to help itself. Varoufakis was left in the odd position of disputing Schäuble’s assertion that the pair had agreed to disagree. Over in Frankfurt, the ECB cranked up the pressure on Greece by yanking its banks’ access to cheap funding: Greek government bonds will no longer be accepted as collateral.

The banks can still get emergency liquidity by going through Greece’s central bank. But they will pay a higher rate of interest for that dubious privilege. What’s more the central bank’s ability to keep the funds flowing is not endless because the ECB can impose limits. The message behind the ECB’s decision seemed clear: we will play hard; we are not about to change our rules of engagement; the time for Greece’s new Syriza government to face reality is fast approaching. Indeed, the end of this month now looms as a real, and dangerous, crunch-point. Syriza has said it wants to exit the bailout programme and argues for a three-month bridging loan to allow time for negotiations. The message from Shäuble was a firm no to the loan. A stand-off between Syriza and the eurozone powerhouses was always in the offing but the positions are now stark. Something has to give here – and quickly.

In a rational world, a bridging loan would be an excellent idea. Attempting to resolve the Greek mess via brinkmanship in the space of three weeks is madness. Remaining depositors in Greek banks will be fleeing. Varoufakis’s plea for “space for all of us to come to an agreement” sounds no more than common sense. Extending finance to Athens until the end of May would not cost much. If the ECB is restricted by its mandate, politicians could always find a pragmatic fudge; they have done so many times in the past. But that is not the way the winds are blowing. Even François Hollande in France and Matteo Renzi in Italy called the ECB’s move legitimate and said it was a way to force agreement. The eurozone’s big beasts seem determined to force a quick resolution, rather than accept Syriza’s timetable.

Socialist punk banker.

• The Lazard Banker Shaping Greece’s and Ukraine’s Financial Fate (WSJ)

Europe’s financial future may hang in the balance in an office on Paris’s Boulevard Haussmann that belongs to a French banker with a taste for punk rock. Matthieu Pigasse is a self-described pro-market socialist and fan of The Clash. The 46-year-old financier is also head of the government advisory arm at Lazard , the international investment bank hired in recent days by both Greece and Ukraine to help renegotiate their debts, according to people familiar with the matter. Mr. Pigasse “has been involved in some of the most important sovereign-debt restructurings in the last decade,” said Deborah Zandstra, a sovereign-debt partner at lawyers Clifford Chance LLP. “His appointment by the new Greek administration is a positive step.”

Both assignments are key to Europe’s political and economic health. Ukraine must negotiate with foreign creditors over as much as $20 billion of Eurobond debt. These efforts could be crucial in whether Ukraine is able to negotiate further loans and keep its budget afloat, bolstering an economy ravaged by the conflict with Russian-backed rebels in the east. In Greece, new Prime Minister Alexis Tsipras has promised to slash the country’s heavy debt burden. But other eurozone leaders have declared that any reduction in the face value of Greek debt would be unacceptable and the Greek finance minister is now proposing to swap debt for new growth-linked bonds. For Lazard, an advisory and asset management firm that listed in New York in 2005, counseling governments has become a steady and growing business.

A team of Lazard bankers, led by Mr. Pigasse, advised Greece in 2012 when it pushed through one of the largest debt restructurings of all time. Lazard has also been very active in Africa, where it has advised Egypt, Mauritania, the Democratic Republic of Congo, Gabon and Ivory Coast. Last year it helped Ethiopia with its debut $1 billion sovereign-bond issue. Advising governments is a relatively small part of Lazard’s business, with fees making up just a small fraction of total revenue. But government mandates are particularly prestigious and the work can be lucrative. In March 2012, Greece said it paid Lazard €25 million for its advice over the previous two years. The sovereign-advisory arm, run out of the Paris office, has increased head count by 50% to 30 over the past three years.

“All their expenses are paid, and they have no capital at risk. This is as sweet as it gets.”

• Banker to the Broke: Lazard Advises Greece, Ukraine (Bloomberg)

When the government goes broke, the broke call Lazard Ltd. While Lazard is best known for mergers and acquisitions, the firm has found lucrative work advising governments in two of the world’s current economic trouble spots: Greece and Ukraine.
The roles are in keeping with Lazard’s long – and not always successful – history as a top adviser to cash-strapped governments. Argentina, Egypt, Indonesia, Iraq, Ivory Coast: all have turned to Lazard over the years. So did New York City, back in the 1970s. It’s nice work for Lazard, which gets to collect fees no matter how things play out for a government or its creditors. “This is a very high-margin business,” said William Cohan, a former Lazard banker and author of a book on the firm. “All their expenses are paid, and they have no capital at risk. This is as sweet as it gets.”

The Lazard team, led by Paris-based banker Matthieu Pigasse, advised a previous Greek government during the nation’s last major financial crisis, when an exit from the euro currency area loomed as a possibility if talks failed. Last week, the nation’s new government hired Lazard to help again as the country seeks to ease the pressure from a debt load of about €315 billion. Ukraine is also working with Lazard, according to people familiar with the situation. Based officially in Bermuda with major offices in Paris and New York, Lazard faces challenges with both of those assignments. The newly elected Greek government of Alexis Tsipras has pledged to increase wages, halt public-sector layoffs and cancel planned asset sales – all part of a package of structural reforms demanded by creditor states including Germany.

Finance Minister Yanis Varoufakis is weighing plans to trade existing debt for new bonds pegged to economic growth, after a proposal to impose a loss of capital on creditors met opposition. Ukraine, for its part, was struggling to meet debt payments even before what the U.S. and European Union say is a Russian-backed rebellion in its eastern regions began last year. It’s now seeking to avert default after its economy shrank an estimated 7.5% in 2014 amid the fighting. Russia, which annexed Ukraine’s Crimea peninsula in March, denies involvement in the conflict. Payments to advisers are determined by the size of the debt reduction and the degree to which creditors participate, and Lazard earned as much as €25 million over two years for previous Greek work, the government said in 2012.

it’s a pattern, not a design flaw.

• Abenomics Leaves Japan’s Poor and Elderly Behind (Bloomberg)

Hiroyuki Kawanishi’s tiny two-room flat in Tokyo may not be much, but it’s home. With Prime Minister Shinzo Abe trimming benefits for the poor as he increases spending on the military and cuts corporate taxes, it may not be for long. “If the housing subsidy is cut, I’ll lose my apartment,” said Kawanishi, 42, who was born with cerebral palsy and can barely fit his wheelchair next to the single bed in his 40 square-meter (400 square-foot) flat. “I’ll have to go to a government nursing home with no freedom. There’ll be no point in living.” Since Abe took office two years ago, aggressive monetary easing devalued the yen, bolstering earnings at big companies and lifting the stock market 70%.

It’s been good for exporters and those who own shares and property, but not so good for those without assets. For them, Abenomics means higher prices and dwindling government support. “If inflation accelerates further under Abe’s policies, inequality will widen,” said Hideo Kumano, chief economist at Dai-ichi Life Research Institute Inc. “The socially vulnerable and low-income classes will be worst affected and a cut in livelihood subsidies deals them a double punch.” Abe is facing a problem that is dogging developed economies from the U.S. to Australia: how to sustain a recovery without widening the wealth gap. More than 30% of households in Japan have no financial assets, up from 26% in 2012, according to the Central Council for Financial Services Information in Tokyo.

Abe’s government is seeking to lower subsidies for housing and winter heating allowances for the poor as part of a three-step program that began in August 2013 to trim welfare costs, including for food, clothes and fuel. The move is part of the government’s efforts to contain rising social security costs as Japan’s aging society pushes up medical and other welfare expenses. The world’s third-largest economy is also the biggest debtor among the advanced economies, with borrowings projected by the International Monetary Fund to swell to more than 245% of gross domestic product in 2015.

Every single currency is under threat.

• Is Denmark Facing A Speculative Attack? (CNBC)

Denmark’s central bank is reaching for bigger bazookas to battle the speculators betting it will be forced to abandon its currency’s peg to the euro. “They’ve thrown the proverbial policy toolkit at defending the euro-Danish peg,” Kamal Sharma, a foreign currency strategist at Bank of America Merrill Lynch, told CNBC Thursday. “They will continue to intervene with the possibility of further rate cuts, even the tail risk of the recalibration of the trading range.” Bets that the krone will rise are building. Some of the flows have headed for Denmark’s stock market, with Danish-focused mutual funds and exchange-traded fund (ETFs) seeing $230 million in inflows over the past six weeks, according to data from Jefferies.

Barclays analysts called it “the slings and arrows of market speculation.” It bears similarities to the speculative attacks that led Thailand to abandon the baht’s peg to the dollar in the late 1990s — the “Lehman-moment” of the Asian Financial Crisis. Denmark’s peg is set for the krone to trade within a 2.25% band of 7.46038 to the euro, although it has been holding it in a 0.5% band. Although the euro has recovered somewhat this week, it has fallen around 17% against the greenback since the beginning of 2014.

“The RBA (Reserve Bank of Australia) is acting as if someone slipped tranquilizers into their drink 18 months ago..”

• Australia Central Bank Acting Like It ‘Just Woke Up’ (CNBC)

Australia’s record low interest rates are about to head way lower, analysts tell CNBC, as the country’s central bank scrambles to play catch up in the race to the bottom for borrowing costs. “The RBA (Reserve Bank of Australia) is acting as if someone slipped tranquilizers into their drink 18 months ago. They’ve just woken up and they’re looking [at] the world around them and they’re only gradually coming to terms with what they can see,” said Michael Every, head of Asia-Pacific markets research at Rabobank. The RBA chopped interest rates by a quarter-point on Tuesday to a historic low of 2.25%, surprising most economists but not the debt markets, which had priced in a 60% chance of a cut.

The central bank gave no hint that further easing is imminent, minutes from the meeting released Friday showed, although it did revise its 2015 growth forecast downwards to 1.75-2.75%, from 2-3% previously. Its less-than-dovish tone gave the Australia dollar a fillip against the U.S. dollar, rising to $0.7860. But Every believes the RBA will have no choice but the bring rates even lower, with central banks the world over going on a monetary loosening spree. China, India, Russia and Canada are just a handful of major economies that have surprised with rate cuts this year. This alongside Switzerland’s shock decision to remove its currency floor while moving interest rates into negative territory, and European Central Bank’s widely expected decision to finally embark on a bond-purchasing program, or QE, to revive the euro zone economy.

He should just leave.

• Oz PM Abbott Fights for Political Life as Colleagues Seek Ouster (Bloomberg)

Australian Prime Minister Tony Abbott said he will fight to stop party lawmakers ousting him next week after just 17 months in power, as two colleagues sought a leadership ballot. vAbbott, 57, said he and his deputy, Julie Bishop, will try to defeat the so-called spill motion when their Liberal Party meets in Canberra Feb. 10. Under party rules, a leadership ballot will go ahead if more than half of the 102 Liberal lawmakers back the motion. “We will stand together in urging the party-room to defeat this particular motion,” Abbott told reporters in Sydney. The party should back “stability and the team that the people voted for at the election.” Less than half-way through his first term, Abbott is struggling to quell disquiet over his leadership amid a voter backlash against his spending cuts and a decision to bestow a knighthood on Queen Elizabeth II’s husband, Prince Philip.

Some senior Cabinet ministers have rallied around the prime minister, saying he should be given time to reverse the government’s flagging poll ratings and reset his policy agenda. “The question now is whether or not there is a willing challenger” to Abbott, said Haydon Manning, a politics professor at Flinders University in Adelaide. “Even if Abbott keeps the leadership, he’ll still be aware he’s just buying himself time to turn around the performance of the government.” Lawmaker Luke Simpkins sent an e-mail to party colleagues earlier Friday saying they must bring concerns about Abbott’s leadership to a head by holding a vote for a spill. His motion was seconded by Don Randall. Nobody has yet said they will challenge Abbott for the leadership. Both Bishop, 58, and Communications Minister Malcolm Turnbull, 60, tipped by local media as potential successors to Abbott, have said they support the prime minister.

Curious deal.

• Venezuela Oil Deal Hits Caribbean Hard (CNBC)

For many countries, cheaper oil is helping boost economic growth. But if you’re a struggling Caribbean nation dependent on energy subsidies from Venezuela, the crash in oil prices is not welcome news. Venezuela’s heavily oil-dependent economy has been sent into a tailspin by the collapse of crude prices, which has starved the country for cash to pay for domestic energy subsidies and imported goods. With little foreign currency reserves left, the economy is contracting, inflation has soared and the government has resorted to rationing food and other consumer staples. And with no rebound in oil prices in sight, the country’s future is looking bleak.

To finance its budget, the government needs oil prices above $140 a barrel, putting generous subsidies for education, food and housing at risk of deep cutbacks.It has also jeopardized generous financing terms extended to more than a dozen Caribbean nations that rely on Venezuelan oil to fuel their own economies. Venezuela launched the so-called Petrocaribe accord in 2005 as it sought to become a low-cost energy provider and win political favor among small island economies heavily reliant on oil imports. But as oil prices have fallen, Venezuela’s energy blessing has turned to something of a curse. Under the terms of the Petrocaribe agreement, the drop in oil prices has—paradoxically—raised members’ oil import costs.

That’s because, as crude prices fall, they lose access to extremely generous financing terms that amount to subsidies. When oil was over $100 a barrel, Petrocaribe member countries paid just 40% of the upfront costs, and Venezuela’s state oil company, PDVSA, covered the rest of the expense with a low interest rate loan payable over 25 years. Some have also paid their oil bills with bartered agricultural products or services. The extra cash from deferred payments helped some countries finance infrastructure projects and other spending programs. But those finance terms become much less generous as the price of oil falls, forcing member countries to pay more upfront, with payment in full when prices fall below $40 a barrel, according to RBC economist Marla Dukharan.

Funny headline, but not entirely true.

• John Kerry Rated Worst Secretary Of State In 50 Years (MarketWatch)

A new survey of scholars ranks Secretary of State John Kerry dead last in terms of effectiveness in that job over the past 50 years. Henry Kissinger was ranked the most effective secretary of state with 32.2% of the vote. He was followed by James Baker, Madeleine Albright, and Hillary Clinton, as judged by a survey of 1,615 international relations scholars. Kerry received only 0.3% of the votes cast. According to the survey, the three most important foreign-policy issues facing the U.S. are climate change, armed conflict in the Middle East and failed or failing states. The survey of 1,375 U.S. colleges and universities was conducted by Foreign Policy magazine and the College of William & Mary.

Debt Rattle February 1 2015

Feb 012015

February 1, 2015 Posted by Raúl Ilargi Meijer at 12:20 pm Finance Tagged with: China, Doomsday Clock, Germany, Greece, Lazard, Merkel, Syriza, working poor 4 Responses »

William Henry Jackson Steamboat Metamora of Palatka on the Ocklawaha, FL 1902

• Europe’s Creditors Play With ‘Political Fire’ Pushing Greece To The Brink (AEP)

• To Escape Economic Hell, Greece Needs Tsipras To Call Germany’s Bluff (Guardian)

• As In 1942, Germany Must Show Restraint Over Greece (Cockburn)

• The Country That Refuses to Bow Down to Western Bankers (AlterNet)

• Greece Hires Lazard To Advise On Debt (FT)

• Greece Will Repay ECB, IMF, Reach Deal With EU, Tsipras Says (Bloomberg)

• Barricades Down, Ties Off: Welcome To Greece’s Style Revolution (Guardian)

• Podemos Looks to Capture Tsipras Momentum to Oust Rajoy (Bloomberg)

• Spain’s Anti-Austerity Podemos Stages Show Of Force Before Elections (Reuters)

• Merkel’s Unintended Creation: Tsipras Win To Upset EU Power Balance? (Spiegel)

• Dijsselbloem To Varoufakis: “You Just Killed The Troika” (Zero Hedge)

• Greece Shakes Europe’s Political Kaleidoscope – Expect The Unexpected (Reuters)

• China Manufacturing Shrinks For The First Time In Two Years (Guardian)

• Beyond GDP: UK Greens Spark Debate On A Better Measure Of Progress (Guardian)

• The Rise Of The Working Poor: When Having A Job Cannot Prevent Poverty (Ind.)

• 10 Reasons You Don’t Hear The Doomsday Clock Ticking (Paul B. Farrell)

“We are ants; the Greeks are grass-hoppers..”

• Europe’s Creditors Play With ‘Political Fire’ Pushing Greece To The Brink (AEP)

Spain’s Podemos party – much in evidence at Syriza’s victory party in Athens, and even more mutinously radical – is leading national polls at 27pc. Marine Le Pen’s Front National won the EU elections in France with calls for a return to the franc and a return to sovereign borders. The three biggest opposition parties in Italy are now hostile to the euro. This is not contagion from Greece. It is running in parallel. Yet how it is handled will spill over with emotional force into the internal debates everywhere in Europe. “Syriza has just won a landslide popular mandate from the Greek people to tell the Troika to go to Hell. It is ludicrous to shout at them and tell them they can’t wriggle out of agreements,” said Giles Merritt, head of the Brussels think-tank Friends of Europe. Mr Merritt said the Syriza revolt has exposed the political failure of EMU crisis strategy with refreshing clarity.

“People in Brussels are losing patience with Germany. The real issue at hand is how we are going to rescue the eurozone from economic depression caused by five years of misguided austerity. Tspiras may find that he has more friends in this city than he thinks,” he said. “We cannot possibly risk Grexit at this stage and trigger a fresh eurozone crisis, so the Commission will soon waiver. Jyrki Katainen is toeing the line for now but he is not a fool. It is Greece that really has the whip hand, and the task is to find a face-saving formula for Germany,” he said. Prof Ashoka Mody, a former IMF bail-out chief in Europe and now at Princeton University, said hints by ECB members that they may pull the plug on Greek banks are “extremely irresponsible” and beyond the proper authority of these officials.

“They are supposed to be the guardians of financial stability. I have never heard of such outlandish threats before. The EU authorities have no idea what the consequences of Grexit might be, or what unknown tremors might hit the global payments system. They are playing with fire,” he said. Marc Ostwald from Monument said Grexit would open a Pandora’s Box. “They are all playing down the risk but once you throw Greece out, you are setting a precedent that nobody wanted to set. How could Cyprus stay in the euro given its dependence on Greek banks? As we have just seen with the Swiss franc, once the system buckles the markets will go after the next victim like a plague of locusts,” he said. The ECB would shield Portugal from immediate Grexit fall-out, but corrosive doubts would be planted.

As the Portuguese newspaper Publico wrote in an editorial entitled “Portugal is not Greece, but…”, the country has the same afflictions of crushing debt, low-growth, and lack of competitiveness within EMU. Combined public and private (non-financial) debt is 380pc of GDP, the highest in Europe, making the country acutely vulnerable to debt-deflation dynamics. Nor is it still viewed as an austerity poster child by Berlin. “The reforms have stalled. Behind the scenes they have put a halt to cuts. It is surprising that people haven’t paid attention to this,” said Raoul Ruparel from Open Europe. “We are ants; the Greeks are grass-hoppers,” protests Luís Marques Guedes, Portugal’s presidency minister.

“Living standards were 85% of the European average before the financial crisis; they are now down to 60%. ”

• To Escape Economic Hell, Greece Needs Tsipras To Call Germany’s Bluff (Guardian)

Lovers of Greek myths know the story of Sisyphus, the king of Corinth who as a punishment from the gods was condemned to spend his time in Hades pushing a boulder to the top of a hill. Every time Sisyphus neared the summit, the boulder slipped from his hands and rolled to the bottom of the slope, and he had to start all over again. The parallels between the sad story of Sisyphus and the equally sad story of Greece are too obvious to require comment. Burdened with debts that are worth 175% of its national output and rising, Greece faces a vain struggle to escape from the economic Hades in which it has been struggling these past five years. So when Alexis Tsipras, head of Greece’s new Syriza coalition government, says his country not only needs debt relief but demands it, he is right. Under the austerity conditions of the past half-decade, the Greek economy has shrunk by 25%. Living standards were 85% of the European average before the financial crisis; they are now down to 60%.

The surprising thing about Greece is not that the people have voted for a radical alternative to the status quo, but that they were stoical for so long. Tsipras’s challenge to the economic orthodoxy also makes sense. What Greece – and the indeed the entire eurozone – needs is not more austerity but stronger demand. Two numbers illustrate the abject failure of economic policy in the 19-nation single currency area: -0.6% and 11.4%. The first is the current inflation rate; the second the current jobless rate. The new government in Athens has made its intentions clear. It has shelved privatisation plans. It has raised the minimum wage and announced moves to hire more civil servants. The message from Tsipras is that we want debt relief and an end to the economic squeeze, and we want them now. There is, though, a complication. Greek voters also want to stay in the eurozone and the EU, which means that Tsipras can get what he wants only through negotiations with his country’s creditors. That means doing a deal with the ECB, the other members of the EU and the IMF.

Ultimately, it means doing a deal with Angela Merkel. David Marsh of the Official Monetary and Financial Institutions Forum wonders how Syriza is going to reconcile these three aims. Merkel and the other EU hardliners can see the inconsistency in Tsipras’s negotiating position. They are relatively relaxed about Greece because they know the tough talking has yet to start. Then they will say that if Greece wants to stay in the euro and wants ECB support for its shaky banks, it has to accept the terms set by its creditors, perhaps with some minor modifications. Tsipras’s best chance of avoiding a humiliating climbdown is to toughen his stance and threaten to leave the euro unless he gets Greece’s official debt reduced by, say, 50%. Indeed, unless he is prepared to do this, it’s hard to see why this leftwing prime minister chose a rightwing anti-German party as his coalition partner.

“They make a desert and call it peace.”

• As In 1942, Germany Must Show Restraint Over Greece (Cockburn)

Here are some quotes from the diaries of Count Ciano (Mussolini’s foreign minister and son-in-law), referring to Greece a year and a half after it was invaded and occupied by Germany. 6 October 1942: “Clodius [the Third Reich’s economics minister] is in Rome to discuss the Greek financial question, which is very bad. If it continues at this rate, sensational and unavoidable inflation will result, with all its consequences… “All this is absurd, but the German army does not intend to reduce its interest rate.” 8 October 1942 [Ciano tells Mussolini about the Greek situation and quotes his reply]: “If we lose this war it will be because of the political stupidity of the Germans who have not even tried to use common sense, and have made Europe as hot and treacherous as a volcano.” “He [Mussolini] is thinking of speaking to Himmler about this… but he will not get anywhere.”

In 2015, as in 1942, the Germans tend to overplay a strong hand. They insist that the Greeks abide by austerity agreements that have just been rejected by Greek voters in the general election on 25 January. The reason there was an election at all was that the previous Greek government, drawn from the conservative New Democracy and nominally socialist Pasok parties, could not get enough support in parliament to select a new president because eurozone leaders and the IMF would not relax their terms. The clear message from Greece is that no Greek government can satisfy the demands of the troika and expect to survive. The Greeks have every reason to reject the troika’s austerity programme. If ever an economic plan failed, it is this one. When the EU and IMF took control of Greek economic policy five years ago, they were meant to solve its debt crisis, modernise the economy and restore it to health.

They have demonstrably failed. A quarter of the economy has been destroyed, 26% of the workforce and 57.5% of youth is unemployed, and the economy is in crisis still. Listening to EU officials speak of “progress made”, one is reminded of Tacitus’s line, spoken by a British insurgent leader resisting the Roman occupation, which has echoed down the centuries: “They make a desert and call it peace.” Do the EU, ECB and IMF officials who visit Athens, often displaying an arrogance and contempt for the views of the Greeks that Tacitus would have found familiar, have much idea of what is happening there? Megan Greene, chief economist for the Portfolio Solutions Group, has studied economic relations between Greece and Germany since 2006. Reflecting on the past five years, she wonders if IMF officials “surrounded by security men in dark glasses” ever met any ordinary Greeks. She recalls an ECB official in Athens being astonished when she told him that many Greeks simply did not have the money to pay their taxes.

“..a central bank which was not accountable to any national authority and which would push countries merely to become hostages to the whims of the financial markets.”

• The Country That Refuses to Bow Down to Western Bankers (AlterNet)

Mario Seccareccia, a professor of economics at the University of Ottawa, has been outspoken in his warnings that austerity policies have the potential to smash economies and spread human misery. In his work supported by the Institute for New Economic Thinking and elsewhere, he has challenged deficit hawks and emphasized the need for strong government investment in things like jobs, education, healthcare, and infrastructure if economies are to prosper. In the following interview, he talks about why what happened to Greece was entirely predictable, why the Greeks were right to reject austerity in the recent election, and what challenges the country faces in forging a sustainable path forward with the left-wing Syriza party at the helm.

Lynn Parramore: You have long been warning of problems in the Eurozone. What do the Greek elections mean to the debate about austerity and how it impacts economies?
Mario Seccareccia: I actually began warning about problems in the Eurozone even before they launched the Euro in 1999! A couple of years after the adoption, in 1992, of the Maastricht Treaty, which was the initial step in the creation the European Economic and Monetary Union or the Eurozone, I happened to be in Paris for the launch of a book that I had co-edited in French titled Les Pièges de l’Austérité (The Austerity Traps) that had been published in November 1993. During the discussions, a number of us were already raising very serious questions about a treaty which prevented national governments from doing what they needed to do to stabilize their economies — namely engage in needed deficit spending, regardless of the magnitude, during times of recession for the purpose of stabilizing income and employment.

Some of us at the book launch warned of problems that could arise from a European supranational currency and a central bank which was not accountable to any national authority and which would push countries merely to become hostages to the whims of the financial markets. Along with many others, I’ve also raised concerns over what economists call “deflationary bias” in the structure of the Eurozone — that is, the tendency for policies to focus on lower inflation instead of more jobs and growth and to prevent greater public spending as a means to achieve growth. I could see that Greece would be the country that would be hit first by these problems because it is financially the weakest link in the euro chain, and because of the high public debt ratio when it joined the Eurozone in 2002. What is surprising is that it took until 2010 to reach such a crisis even though the warnings had been there for a long time.

Big name. Interesting choice.

• Greece Hires Lazard To Advise On Debt (FT)

The Greek government has hired investment bank Lazard to advise it on managing sovereign debt in a sign that Syriza is serious about honouring its election pledge to restructure its debt pile—despite EU officials warning against it. Tensions have been high since the country’s newly-elected far-left party came to power after winning elections a week ago, with German chancellor Angela Merkel on Saturday reiterating that Greece’s European creditors would not consider forgiving part of the debt-ridden country’s rescue loans. “I don’t see a further debt haircut,” she said. News of the move to hire Lazard came as Erkki Liikanen, an ECB governing council member, warned that Greek banks would be cut off from ECB lending if no deal was reached by the end of February when Greece’s support programme expires.

“We (the ECB) have our own legislation and we will act according to that. . . Now, Greece’s programme extension will expire at the end of February so some kind of solution must be found, otherwise we can’t continue lending,” Mr Liikanen said. Meanwhile, prime minister Alexis Tsipras on Friday called ECB president Mario Draghi to reassure him that his new government wanted to reach a “mutually beneficial” solution with international partners over the renegotiation of Greece’s bailout. A Greek official, who spoke to Bloomberg on condition of anonymity, said Mr Tsipras called Mr Draghi following a tense meeting between his new finance minister Yanis Varoufakis and Jeroen Dijsselbloem, the head of the eurozone group of finance ministers.

Mr Varoufakis had said that Greece would no longer co-operate with the troika of international lenders and would not accept an extension of its EU bailout. “This position enabled us to win the trust of the Greek people,” he said. Mr Dijsselbloem in return rejected the new Greek government’s call for an international conference that would consider writing off part of Greece’s debt, which last year amounted to 175% of national output. The exchange, along with tough words from Berlin, captured an adversarial mood as the new Greek government and its eurozone partners made their first formal contact and set the stage for tense negotiations that could decide Greece’s future in the European bloc.

Weighing very word is crucial: “I am absolutely confident that we will soon manage to reach a mutually beneficial agreement..”

• Greece Will Repay ECB, IMF, Reach Deal With EU, Tsipras Says (Bloomberg)

Greek Prime Minister Alexis Tsipras sought to repair relations with creditors after a week-long selloff in bonds and stocks, triggered by his pledge to end the country’s bailout agreement. Greece will repay its debts to the European Central Bank and the International Monetary Fund and reach a deal soon with the euro area nations that funded most of the country’s financial rescue, Tsipras said Saturday in an e-mailed statement. “My obligation to respect the clear mandate of the Greek people with respect to ending the policies of austerity and returning to a growth agenda, in no way entails that we will not fulfill our loan obligations to the ECB or the IMF,” Tsipras said.

Greece may soon be operating without a financial safety net for the first time in five years after Tsipras said he won’t respect the conditions of the country’s €240 billion rescue. He’s asking euro area officials to endorse an alternative program of economic revival that would allow increases in spending and wages to boost growth. “We need time to breathe and create our own medium-term recovery program, which amongst other things will incorporate the targets of primary balanced budgets and radical reforms to address the issues of tax evasion, corruption and clientelistic policies,” Tsipras said. “I am absolutely confident that we will soon manage to reach a mutually beneficial agreement, both for Greece and for Europe as a whole.”

“As a last act of resistance the victims sang, breaking into the Greek national anthem, as they were lined up before the firing squad.”

• Barricades Down, Ties Off: Welcome To Greece’s Style Revolution (Guardian)

Barely 20 minutes after being sworn in, Tsipras was standing before a large slab of marble in the rifle range of Kaisariani holding a clutch of red roses. The slab commemorates 200 resistance fighters killed by Nazi SS officers as the war neared its end on 1 May 1944. The youngest was 14. The red roses, gingerly placed on top of the memorial, represented the “rivers of blood” that some in Kaisariani, an Athens suburb, still recall flowing through the streets that day. The massacre, in reprisal for the fatal ambushing of a German general, would end up being among the worst committed by Nazi forces feeling the heat of resistance. The victims were almost all communists interned in Athens’ infamous SS-run Haidari concentration camp. If memory is the stomach of the mind, as St Augustine once noted, for Greek leftwingers Kaisariani is a visceral reminder of what so many endured during the “stone years” of the 20th century.

Civil war, military dictatorship, persecution under rightwing governments ensued. As a last act of resistance the victims sang, breaking into the Greek national anthem, as they were lined up before the firing squad. Tsipras did not speak. He did not have to. The monument spoke for him. And its message was twofold: the left had finally achieved power, and Germany should never forget how much the Greeks had suffered. Just as they had done under occupation, they would continue to resist Germany’s hegemony and its perceived attempts at subjugation through economically disastrous austerity.

Two days after overthrowing the old political order, the young revolutionaries insisted that barricades protecting the Greek parliament –ostensibly from furious protesters – be brought down. Under Syriza’s stewardship, Athens’s new civil protection minister felt fit to announce that the cradle of democracy no longer needed to be iron clad. The biting cuts and tax rises that had pushed Greeks on to the streets, in massive demonstrations when the crisis first hit, now belonged to the past. Under azure skies – for the sun had come out – I watched as workmen dismantled the barriers with an alacrity not known to most labourers in Greece.

A riot bus, parked alongside the building at the behest of the previous conservative-led coalition, was gone by the time the sun had come up. A band of American tourists, taking in the sight as they watched the slow-motion dance of the ceremonial guards outside the parliament, began to applaud. Inside, as the government held its first cabinet meeting, the cameras rolled. Looking straight up at them, Tsipras declared: “We do not have the right to disappoint our voters.” By day’s end, the anti-austerians had delivered on their promises, reinstating the minimum wage, rehiring public sector employees, and rolling back on all manner of reforms.

“Tick tock, tick tock, Mariano – you won’t survive till summer..”

• Podemos Looks to Capture Tsipras Momentum to Oust Rajoy (Bloomberg)

Thousands of supporters of Spanish anti-austerity party Podemos converged on Madrid today to kick off a year of campaigning they hope will end with the ouster of Prime Minister Mariano Rajoy. The group, which has led in most recent opinion polls, has been energized by the election victory of its ally Syriza in Greece, where Prime Minister Alexis Tsipras is challenging the European Union’s insistence on spending cuts after a seven-year recession that wiped out 25% of the economy. “Greece, brothers, here we come,” the crowd shouted. “Tick tock, tick tock, Mariano — you won’t survive till summer.” Podemos emerged over the past year, matching similar movements in Italy, Ireland and Greece, where many voters have grown tired after years of austerity.

While Spain’s economy is growing at the fastest pace in seven years, its 24% unemployment rate means many voters are still to feel the effects of the recovery. “Change has already started,” Juan Carlos Monedero, a member of Podemos’s executive committee, said in comments broadcast on the Internet. The anti-establishment party’s march started outside the central bank and the headquarters of the army in Cibeles square in the center of the capital and then headed down to the Puerta del Sol, the plaza colonized by the so-called indignados in 2011. Most demonstrators wore stickers with the party’s purple logo, a reference to Spain’s second republic brought to an end by the civil war in 1936.

Podemos grew out of the indignados movement – many of its leaders and party workers were involved in the 2011 demonstrations – and won five seats in the European elections in May just four months after it was created. Since then the party’s popularity has surged. A Jan. 10 survey published by El Pais showed the party on 28.2% with Prime Minister Rajoy’s People’s Party in third place on 19.2%. A Sigma Dos poll published by TV station Telecinco on Jan. 20 showed the PP leading Podemos by 29.4% to 26.2%. “Podemos has become a force in Spanish politics and need to be taken seriously,” said Tom Rogers, senior economist at Oxford Economics. “However, as radical parties get closer to government, they tend to get the most radical elements out and become more pragmatic.”

“In Greece, more has been done in six days than in many years..”

• Spain’s Anti-Austerity Podemos Stages Show Of Force Before Elections (Reuters)

Tens of thousands marched in Madrid on Saturday in the biggest show of support yet for Spanish anti-austerity party Podemos, whose policies and surging pre-election popularity have drawn comparisons with Greece’s new Syriza rulers. Crowds chanted “yes we can” or “tic tac tic tac” to suggest the clock was ticking for Spain’s scandal-ridden political elite. Many waved Greek and Republican flags and banners reading “the change is now” or “Pablo president”. Podemos (“We Can”) was formed just a year ago by university professor Pablo Iglesias, but produced a major shock by winning five seats in elections for the European Parliament in May.

Tapping into Spaniards’ austerity fatigue and widespread anger at “la casta”, as it calls the country’s business and political elites, it is currently topping opinion polls in the run-up to local, regional and national elections this year. “People are fed up with the political class,” said Antonia Fernandez, a 69-year-old pensioner from Madrid who had come to the demonstration with her family. Fernandez, who lives with her husband on a €700-a-month combined pension cheque, said she used to vote for the Socialist Party but had lost faith in it because of its handling of the economic crisis and its austerity policies. “If we want to have a future, we need jobs,” she said. Spain is emerging from a seven-year economic slump as one of the euro zone’s fastest growing countries.

But the exit from recession has yet to ease the hardship for millions of households, in a country where nearly one in four of the workforce remains out of a job. Addressing the crowd in the Puerta del Sol square in central Madrid, the 36-year-old, pony-tailed Iglesias said 2015 would be the “year of change” in Spain. “The wind of change is starting to blow in Europe,” he said in Greek, as he praised Greek leftist leader Alexis Tsipras’ first decisions as prime minister. Tsipras promised that five years of austerity, “humiliation and suffering” imposed by international creditors were over after his Syriza party romped to election victory on Jan. 25. “Who said it was impossible? Greece today has a government of change. In Greece, more has been done in six days than in many years,” Iglesias said.

Der Spiegel defends Angela.

• Merkel’s Unintended Creation: Tsipras Win To Upset EU Power Balance? (Spiegel)

Tsipras never tires of saying that he wants to “give the Greeks back their dignity.” And dignity is an important word for those who seek to understand what has happened in Greece. If so many Greeks didn’t feel humiliated by their own corrupt political class, by their dwindling prosperity – but also by the Germans and the other Europeans – Tsipras would have never been elected. Tsipras is a man whose career was spawned by the euro crisis. The currency that was designed to unite Europe has effectively divided its people. In an economic community in which some feel that they have been hoodwinked and others feel oppressed, Tsipras’ fans revere him as a rebel. Many Greeks see him as a man who has what it takes to free them from oppression.

At the same time, many Germans see him as a terrifying extremist. They view Tsipras as Europe’s nightmare. Tsipras is the anti-Merkel, and he never would have achieved this kind of political success were it not for the German chancellor. And now these individuals constitute the two antipodes in a Europe in which there is a growing lack of mutual understanding. How could it come to this point? Right from the start, the euro was more than just a currency. It was a pledge to heal the rifts created by war and blind nationalism in Europe. When then-German Chancellor Helmut Kohl signed the Maastricht Treaty on Feb. 7, 1992, he hoped that the common currency would irreversibly unite the Continent.

Now, the euro appears to be stirring up the very antagonistic sentiments that it was supposed to eliminate. In Greece the crisis has brought a government to power that features an entirely new mixture of left-wing radicals and right-wing populists, whose only common ground is the joint struggle against Merkel’s austerity dictate. But Tsipras is also Merkel’s unintended creation. His rise to power cannot be explained without a deep understanding of the frustration that Europe’s policy of austerity has sparked. This may seem irrational. After all, it was the Greeks who amassed such huge debts that their country could no longer bear the burden in April 2010. But by morphing Merkel into an austerity dominatrix, Tsipras has created an artificial figure upon whom he can project all of the Greeks’ negative feelings.

“..and whispered…”you have just killed the Troika,” to which Varoufakis responded… “wow!”

• Dijsselbloem To Varoufakis: “You Just Killed The Troika” (Zero Hedge)

Amid ‘turmoiling’ stock markets on Friday, CNBC’s Simon Hobbs summed up the status quo’s thinking on the new Greek leadership when he noted, somewhat angrily and shocked, “The Greeks are not even trying to reassure the markets,” seeming to have entirely forgotten (and who can blame him in this new normal the world has been force-fed for 6 years) that political leaders are elected for the good of the people (by the people) not for the markets. Yesterday saw the clearest example yet of Europe’s anger that the Greeks may choose their own path as opposed to following the EU’s non-sovereign leadership’s demands when the most uncomfortable moment ever caught on tape – the moment when Eurogroup chief Jeroen Dijsselbloem stood up at the end of the EU-Greece press conference, awkwardly shook hands with Greece’s new finance minister, and whispered…”you have just killed the Troika,” to which Varoufakis responded… “wow!”

As Keep Talking Greece reports: The joint press conference was concluding, when Greek Finance Minister Yanis Varoufakis droped a last bombshell. “…and with this if you want – and according to European Parliament – flimsily-constructed committee we have no aim to cooperate. Thank you.” Varoufakis was referring to the famous Troika, the country’s official creditors consisting of the European Union, the International Monetary Fund and the European Central Bank.. After concluding with a “Thank you” Varoufakis gives the word to Eurogroup Chief Jeroen Dijsselbloem, who wants to hear the translation first. Then he takes off the ear phones, he stands up and sets to leave. An enforced-looking shaking of hands delays the departure of the Dutch FinMin. Dijsselbloem quickly whispers something to Varoufakis’ ear, he briefly replies back and the Eurogroup chief leaves the press conference hall as soon as it was possible.

“We’re in for at least half a decade of turbulence and uncertainty in Europe.”

• Greece Shakes Europe’s Political Kaleidoscope – Expect The Unexpected (Reuters)

By catapulting to power an improbable alliance of the hard left and nationalist far right, Greece has shaken up Europe’s political kaleidoscope and may have signaled the end of an era of centrist consensus. With eight general elections due in the European Union this year, as well as regional votes, the earthquake in Athens may be a harbinger of other shocks to come. Expect the unexpected in 2015 from Britain to Finland and Denmark to Spain as voters who have endured five years of economic crisis, falling real incomes and welfare cuts vent their anger, anxiety or apathy at the ballot boxes. Mainstream center-right and center-left parties that have dominated European politics since the end of World War II are bleeding support to populists at both ends of the spectrum, and to mavericks like Italian comic-turned-politician Beppe Grillo.

This theme will be prominent during Reuters’ annual euro zone summit this week which will interview a host of policymakers from Brussels and key EU capitals. In many countries, voters feel the established parties offer no real alternative. Many are keen to punish a ruling “caste” perceived as out of touch with ordinary people’s concerns, and as helping themselves rather than their electors. What unites many of the new forces is hostility to the EU and to policies of austerity driven from Brussels and Berlin. “We’ve reached the end of a 30-year cycle of liberal individualism and wealth accumulation that began with Ronald Reagan and Margaret Thatcher,” former British Europe minister Denis MacShane said in an interview. “We’re in for at least half a decade of turbulence and uncertainty in Europe.”

This is not just growth contraction, it’s actual contraction. Things get worse fast.

• China Manufacturing Shrinks For The First Time In Two Years (Guardian)

China’s manufacturing activity contracted for the first time in more than two years in January, an official survey showed on Sunday, signalling further downward pressure on the world’s second-largest economy. The official purchasing managers’ index (PMI) released by the national bureau of statistics came in at 49.8 last month, down from the 50.1 recorded in December. The index, which tracks activity in factories and workshops, is considered a key indicator of the health of China’s economy. A figure above 50 signals expansion, while anything below indicates contraction. January’s figure was the first contraction for 27 months. The British bank HSBC said last month that a preliminary reading of its own PMI edged up to 49.8 in January from a final reading of 49.6 in December. It was at the break-even point of 50.0 in November.

The bank is scheduled to release its final PMI figure on Monday. ANZ Banking Group said in a research report that the NBS figures were unexpected, particularly given “favourable seasonal factors”. “The Chinese New Year falls into late February this year, while it was in late January last year,” ANZ said. “Past experience suggests that there could be significant front loading effect before the Chinese New Year, which would provide short-term impetus to the manufacturing industry.” China’s central bank surprised economists in November by cutting benchmark interest rates for the first time in more than two years, in a move interpreted as an attempt to shore up flagging growth. The People’s Bank of China lowered its one-year rate for deposits by 25 basis points to 2.75% and its one-year lending rate by 40 basis points to 5.6%.

“The prior question is, ‘what are we trying to achieve with our lives?’”

• Beyond GDP: UK Greens Spark Debate On A Better Measure Of Progress (Guardian)

Daffodils do it; babies do it; kittens do it: growing seems like the most natural thing in the world, and over the years we’ve come to understand growth as the normal state for economies, too. Recessions, when GDP temporarily declines, are an aberration, imperilling human progress and interrupting the natural order. And chancellors are keen to trumpet Britain’s success when, as in 2014, our growth rate races ahead of the competition. So when the Green party suggested last week that it might abandon the idea of targeting GDP growth as a public policy aim, it caused a storm of indignation with some commentators fearing that the environmentalist party – which has been registering support of more than 10% in some recent polls – would catapult Britain back to the dark ages.

Caroline Lucas, the Green MP for Brighton and the party’s spokeswoman on the economy, is keen to play this down, stressing that any shift to a new way of gauging economic success would have to be gradual. She argues, for example, that a more rounded view of progress might incorporate a measure of how much Britain is depleting or polluting its “natural capital” – resources such as rivers, forests and oceans. The independent Natural Capital Committee, chaired by academic Dieter Helm, already produces regular reports for the government on sustainable use of resources.

“I don’t think it’s unreasonable to say that – at the very least to begin with – alongside GDP, we might also begin to have a measure of the depletion of resources,” Lucas says. “Once people get more used to that, you could imagine bringing in two or three more indicators: health, community cohesion, equality and so on.” She argues that GDP – which measures all kinds of economic activity, but misses out “bad” factors such as pollution, is “a very, very flawed measure: all it’s measuring is the amount of money revolving around the economy, without ascertaining whether or not it’s being used to good or bad ends. The prior question is, ‘what are we trying to achieve with our lives?’

Britain’s great recovery.

• The Rise Of The Working Poor: When Having A Job Cannot Prevent Poverty (Ind.)

The “vast majority” of veterans who need financial aid to prevent them from slipping into homelessness are unable to make ends meet despite having jobs, the head of a leading military charity has revealed. Hugh Milroy, the CEO of Veterans Aid, a front-line charity fighting homelessness among the country’s ex-servicemen and women, said about 80 per cent of its active cases could be described as “working poor” – people who are in employment but still fall below the poverty line. Staff at the charity, one of two being supported by The Independent on Sunday’s charity appeal, have observed a marked change in the kind of person seeking help over the past two years. The proportion of working poor on the charity’s books has been rising rapidly, they said.

“They are people who simply cannot afford to live and work. We’ve had one or two really bad cases where whole families could have ended up on the streets if we hadn’t intervened,” Dr Milroy said. “This is a really serious issue, and it isn’t going away. Life in Britain is complex and expensive. Some people simply can’t afford their rent and end up sleeping in their car, even though they’ve got a job. You cannot sustain your life like that.” The charity recently helped a single father with three young children who had been given 24 hours to move out of his flat after accruing debts through a payday loans company. Veterans Aid gave him money for a deposit on a new property and guaranteed his rent for six months. “Had we not, they would have been on the streets,” Dr Milroy said.

“..in the United States at present, the policies being pursued by too many wealthy people and decision makers are ones that, as in the case of the Mayan kings, preserve their interests in the short run but are disastrous in the long run.”

• 10 Reasons You Don’t Hear The Doomsday Clock Ticking (Paul B. Farrell)

The Doomsday Clock was just reset: It’s now “Three Minutes to Midnight,” warns the Bulletin of Atomic Scientists. It’s loud ticking is a grim reminder, as Joe Romm put it on ClimateProgress, that “Earth’s rate of global warming is 400,000 Hiroshima bombs a day.” Yes, a civilization-ender, and yet, Gallup polls dismiss the warning — the public doesn’t consider climate change a major national priority. The threat was also summarized in Scientific American: The Doomsday Clock is “a visual metaphor to warn the public about how close the world is to a potentially civilization-ending catastrophe. Experts on the board said they felt a sense of urgency this year because of the world’s ongoing addiction to fossil fuels, procrastination with enacting laws to cut greenhouse-gas emissions and slow efforts to get rid of nuclear weapons.” Yes, global warming is as powerful and lethal as 400,000 atomic bombs exploding daily, said James Hansen, former head of NASA Goddard Institute of Space Studies.

America is addicted to Big Oil. But paradoxically, that’s numbing us to the terminal ticking sound of the disasters ahead. Our brains are trapped in denial — not just Big Oil and their right-wing climate-science deniers — but more than 100 million average Americans. We’re deaf. Dumb. Blind. To the threats. This is a problem of psychology, behavioral economics and the neurosciences. As anthropologist Jared Diamond, author of “Collapse: How Societies Choose to Fail or Succeed,” put it: Our brains still haven’t learned the lessons of history. Remember, centuries ago two million people lived in the Mayan civilization. But like “so many societies the elite made decisions that were good for themselves in the short run and ruined themselves and societies in the long run.”

As a result, the Mayan civilization collapsed “because of a combination of climate change, drought, water-management problems, soil erosion, deforestation.” Diamond added the rulers “managed to insulate themselves from the consequences of their actions.” Forests being chopped down. But “the kings didn’t recognize that they were making a mess until it was too late.” Flash forward, “similarly, in the United States at present, the policies being pursued by too many wealthy people and decision makers are ones that, as in the case of the Mayan kings, preserve their interests in the short run but are disastrous in the long run.” Yes, today the old pattern is repeating. Listen to 10 excuses Americans make. All of us, not just Big Oil but all across America, Washington, Wall Street, and yes, all over Main Street. Here’s why we are already repeating the same fate as the Mayans in today’s world of endless hypocrisy and denials about global warming, failing to prepare, oblivious of the coming storms.