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I don’t understand why people get upset when I say that economics is a waste of time. I suppose it’s because I don’t make a clear enough difference between economics as a general topic and economics as a formal, mainstream, body of knowledge. It’s the latter that is a waste of time. The former is wonderfully interesting. At its heart economics is a study of human behavior, where that behavior is specific to certain activities. It is thus deeply rooted in psychology, so it is more closely associated with biology than physics. This is not a new idea: some of the greatest economists of the past have argued as much. Trying to transfer in ideas from physics, even metaphorically, therefore tends to lead to dead ends.

Like the notion of efficiency. That’s something of great interest to engineers, but has little to do with economics. You can have an efficient physical system. You cannot have an efficient social system. There’s just too much we don’t know and can never know. Still economists all over the world are obsessed with efficiency. So what do they do? They start to abstract and simplify. They model and fine tune. They test and re-test. And still their ideas run afoul of reality: human beings are not efficiency seeking machines, and so any system filled with humans is likely to be darned near impossible to steer towards efficient outcomes. Nothing daunted economists press on. If humans are unlikely to be efficient the logical next step is to construct a theory to exclude actual humans.

That’s what’s happened in economics: the faulty decision to root economics in a physics-like setting rather than in a biology like-setting forced subsequent generations of economists to “refine” their thinking and, eventually, to force real people out of their theoretical world. Voila! Modern economics ends up as a wonderful edifice with extravagant claims as to its ability to understand human behavior precisely by eliminating all contact with humanity. Weird. Ergo, if your goal is to understand real economies replete with real humans, modern economics is a waste of time.

Go study something else. You can learn a great deal about real economies by reading psychology literature. Behavioral economics — which despite all the press it gets has had only a marginal impact on the mainstream and on textbook economics — is an attempt to do that. The behavioral economics project is in its infancy. Go get involved. By the way: anything that refers to strategic behavior is also useful. Real humans are constantly trying to outwit each other. That’s when they’re not cooperating, which is another human characteristic economics determinedly overlooks. Humans are complicated. Too complicated for an economics built on an exclusive belief in relentless rationality.

“This rosy scenario, which is the current ten-year baseline, assumes 30% more nominal GDP and wage growth per year than we’ve actually had in the past ten years.”

• Stockman: Trump’s Tax Plan Never Had a Chance (DR)

David Stockman joined Fox Business and Maria Bartiromo on Mornings with Maria to discuss President Trump’s tax plan efforts and what he viewed as a massive calamity unfolding in Washington. The Fox Business host began the conversation by asking what he thought on the Trump tax plan proposal. Stockman pressed, “I think it is a one page, $7.5 trillion wish list that has no chance of being enacted and is pretty irresponsible this late in the game.” The host then fired back by asking how the former Reagan budget director placed a price tag on the plan without a score from the Congressional Budget Office. The author fired back, “The corporate is at 15%, the pass through rate on all unincorporated business is at 15% and that will cost roughly $4 trillion. Doubling the standard deduction will cost over $1 trillion. Getting rid of the alternative minimum will cost nearly $1 trillion.”

Then when referencing the Committee for a Responsible Federal Budget (which Stockman is a Board Member of) the author highlighted, “The gross cost is $7.5 trillion and that perhaps the government could earn back $2 trillion through loophole closing and base broadening. My argument is, after ruling out charitable contributions, home mortgages and a Congress that says they won’t touch a health care exclusion… when you go through the math there is no $2 trillion that this Congress and Republican party will even remotely be able to put together.” When asked about the assumption from Treasury Secretary Mnuchin and Senior Economic Advisor Cohn that new economic growth would pay for the budget Stockman pressed on the facts as he saw them:

“Growth always helps, but what they’re failing to realize, and what I learned in the 1980’s is that there is more growth built into the baseline forecast from the CBO than you’re ever going to achieve in the real world.” “This rosy scenario, which is the current ten-year baseline, assumes 30% more nominal GDP and wage growth per year than we’ve actually had in the past ten years.” When asked about the conditions in Congress and how else the government could raise revenue he directed, “We have to look at the numbers. There’s $10 trillion of new deficits built in over the next ten years, within the current policy, with rosy scenario economics. If you are going to try to push $2-$6 billion in tax cuts on top of that with $1 trillion of defense increases, $1 trillion for infrastructure in addition to Veteran spending and more – we’re headed for a fiscal calamity.

Christopher Balding and crazy numbers.

• Is China Really Deleveraging? (Balding)

There’s growing evidence that China is finally scaling back its epic borrowing binge. That’s important for a lot of reasons, not least for reducing risk and avoiding a financial crisis. The question is whether the government can sustain the pain. Regulators in Beijing are well aware of the risks that excessive leverage poses, and have tried many times over the years to crack down. Yet they routinely fail to rein in local government officials who get promoted by boosting economic growth, regardless of what systemic risks they may be incurring by binging on debt. To adapt a Chinese proverb: Growth is high and the banking regulator is far away. Evidence is mounting that this time is different. Lending to banks from the People’s Bank of China, which surged by 243% from December 2015 to January 2017, has declined by 12% in the past two months.

Loans to non-financial corporations are up a relatively moderate 7.3% from March 2016, which is a slower rate than nominal growth in gross domestic product. Although this clampdown followed an enormous surge of credit in the first half of last year, it does suggest real progress. Another good sign is that the government is starting to rein in shadow banking. Issuance of risky wealth-management products declined by 18% in April from March, as banks and insurance companies have been pressured to rely on them less. Because the sector is so enormous – with more than $4 trillion outstanding – getting it under control is a crucial prerequisite for any serious deleveraging. Predictably, though, these reforms have pushed down asset prices. Stocks, bonds, commodities and real estate have all turned strongly negative.

Interest rates have been inching up, inflicting losses on bond investors. Allocations of stocks and commodities in wealth-management products are at their lowest levels in almost a year, depressing prices further. This will probably get worse. Industrial capacity is widely up while demand growth is flat. Steel rebar prices have dropped by only 8% from their highs this year, and remain up by an amazing 91% since December 2015. Yet even this small dip has had a major effect. In March, when prices peaked, 85% of Hebei steel makers reported being profitable. Now that figure stands at 66%. If an 8% drop in prices results in a 19 percentage-point decline in the number of profitable steel mills, more serious price drops could well push the industry to the brink.

For a sector in which listed firms have suffered operational losses of 5.1 billion yuan since 2010 – during one of the largest building booms the world has ever seen – a sustained deleveraging effort may well spell disaster. The property market could also be in for a rough ride. Chinese consumers take the ability to buy an apartment as a birthright, and prices have risen in response to demand. Mortgage lending has grown by 31% since March 2016. But as cities place more restrictions on purchases and banking regulators get tougher about slowing mortgage growth, the resulting pressure on prices could be an unpleasant surprise for homeowners and indebted developers.

Don’t worry, the world will care yet.

• China Stocks Are Tumbling Again. Unlike 2015, World Doesn’t Care (BBG)

Global investors are still shaking off a rout that’s erased more than $560 billion from the value of Chinese equities, making them the world’s worst performers since mid-April. Below are four charts showing just how deep the pain has spread in China’s mainland. Outside of the nation’s borders, investors are indifferent to the weakness in the second-largest equity market after the U.S. The MSCI All-Country World Index is near a record and the VIX Index, the so-called fear gauge for U.S. stocks, is close to its lowest level since 1993. The ChiNext small-cap gauge, seen as a barometer for Chinese stock-market sentiment, has taken quite the hit this year, down 9.7% and close to its lowest level since February 2015. The selloff erased all that was left of a rebound from a low later that year, after a bubble in China’s markets burst.

A technical indicator suggests the Shanghai Composite Index has fallen too far, too fast. The gauge’s relative strength index dipped further below the 30 level that signals to some traders an asset is oversold, and is close to levels not seen since 2013. Chart watchers are still waiting for that rebound. The benchmark for yuan-denominated shares has lost 6.9% in the past month, while global stocks are up 2.8%. That divergence means the Shanghai measure is trailing the rest of the world by the most since 2014.

Chinese stocks now make up less than 9% of the world’s equity market, the smallest slice since June last year. The value of global equities is near a record $73 trillion reached earlier this month.

Quite shocking: “..each employed worker in China generated only 19% of the amount of GDP an American worker did.” Workers in India generate just 13%.

• China Has the World’s Biggest Productivity Problem (BBG)

Just about everybody assumes that China will overtake the U.S. as the world’s indispensable economy. One factor, however, could slow its seemingly relentless march and cast doubt on China’s prospects for becoming an advanced economy: faltering productivity. Sure, China is advancing daily in wealth, technology and expertise. But nothing is inevitable in economics. As costs rise and the labor force shrinks due to Beijing’s decades-long “one-child” policy, China will need to squeeze a lot more out of each remaining worker to keep incomes growing. If not, China could succumb to a sluggish trajectory that threatens both its future and that of the entire global economy. Despite China’s reputation as a paragon of authoritarian efficiency, the country isn’t immune to the global trend of dwindling productivity gains.

The Conference Board, using adjusted economic growth estimates, figures that Chinese labor productivity rose 3.7% in 2015, a precipitous plunge from an average of 8.1% annually between 2007 and 2013. (Official Chinese statistics also show productivity growth falling off, although settling at higher rates.) Of course, even that reduced clip looks drool-worthy to policymakers elsewhere. Labor productivity inched upwards by a mere 0.7% in the U.S. and 0.6% in the euro zone in 2015. But the smaller increases in China are a big problem, because it has so much catching up to do. Chinese workers are miserably unproductive compared to their U.S. counterparts. The Conference Board calculates that in 2015 each employed worker in China generated only 19% of the amount of GDP an American worker did.

That’s not a whole lot better than Indian workers, who created 13%. China, like other economies in Asia, is facing the consequences of its past success. The region’s economies achieved eye-popping growth rates by tossing their poor and primarily agrarian workers into industry and global supply chains. That unleashed a torrent of productivity gains, as peasant farmers started making everything from teddy bears to iPhones. In other words, China propelled its rapid development by shifting underutilized labor and capital into a modern capitalist economy. (That’s why Paul Krugman once argued that there was nothing particularly miraculous about the Asian “miracle.”) Inevitably, though, such low-hanging, productivity-enhancing fruit gets picked as the economy advances. Then the bang you get for every buck of new inputs starts to taper off.

It’s time for proof on all aleegations concerning Russia. Either that or a full stop. I was just talking to someone who said he ‘believes’ the Russians downed MH17. But belief doesn’t cut it, we need facts and proof.

• No Evidence of Russian Intrusion in US Political System (Ron Paul)

RT: Sergey Lavrov says President Trump wants productive relations with Moscow after the previous administration soured them. Can they be improved considering the storm over the alleged ties between the Trump team and Russia?

Ron Paul: Absolutely. And I think that has been. What is going on right now is an improvement. I think what is going on in Syria with these de-escalation zones; I think that is good. They are talking to each other. I just don’t understand why sometimes there is an impression that we shouldn’t be having diplomatic conversations … All the tough rhetoric doesn’t do any good. Trump’s statement to me sounded pretty good. I think the whole thing about the elections, putting that aside would be a wise thing because the evidence is not there for any intrusion in our election by the Russians. I think this is good progress, and there will be plenty individuals in this country who complain about it because it just seems like they are very content to keep the aggravation going. Right now, the relationship from my viewpoint has greatly improved. I think that is good.

RT: During the media conference, some journalists again raised the question of possible Russian involvement in US politics. How is it possible for such a great nation to think this way?

RP: If it is a fact, we should hear about it, but we haven’t. And those individuals who are trying to stir up trouble like that, they haven’t come up with any facts. Nobody wants anybody’s elections interfered with. But the facts aren’t there, so why dwell on that? Why use that as an excuse to prevent something that we think is positive and that is better relations with Russia. I think what is happening with this conversation is very beneficial.

RT: According to Lavrov, Trump also expressed his support for creating safe zones in Syria. Will this pave the way for co-operation between the two coalitions?

RP: With Assad and Russia working together and getting more security for the country, at the same time the US is now talking with Russia. I think this is good. But just the acceptance of the idea that we should be talking and practicing diplomacy rather than threats and intimidation. There are obviously a lot of problems that we have to work out, but I think in the last week and the last couple of days very positive things have been happening.

RT: The meeting came after the firing of the FBI director James Comey. What do you make of the timing?

RP: I don’t think that firing had anything to do with the so-called investigation. I think it has to do with the credibility of Comey as such, where he was involved too politically in the issues. First, it looked like he was supporting Hillary, then the next time he was supporting Trump, and he should not have been out in front on either one of those issues; that should have been done more privately on these charges made that were unconfirmed. I think this represents poor judgment on Comey’s part and certainly, the president had the authority to fire him. It will be politicized now, and the question will be whether there will be a special prosecutor, but if there are no problems, then a special prosecutor in my estimation is unnecessary.

Stick a fork in it and turn it over.

• Canada’s Home Capital Seeks New Funding Sources, Uncertain Of Future (BBG)

Home Capital said it’s seeking new sources of funding after a run on deposits sparked by a regulatory investigation raised concerns about the Canadian mortgage lender’s ability to stay in business. “Material uncertainty exists regarding the company’s future funding capabilities as a result of reputational concerns that may cast significant doubt” about continued operations, Home Capital said in a statement late Thursday. “Management’s focus is on finding more sources of funding in the near term so we can be more active serving our customers, and on seeking longer-term solutions that put the business back on track.” Home Capital’s troubles are being closely watched by investors concerned about possible contagion to other lenders and to the red-hot real estate markets in Toronto and Vancouver.

The Canadian dollar has slumped, and is the worst performing currency among Group of 10 nations this year. Moody’s Investors Service late Wednesday cut the credit ratings on six Canadian banks, citing rising household debt and soaring real estate prices that make the banks more vulnerable to losses. Home Capital, accused by regulators last month of misleading investors over fraudulent mortgage loan applications, has lost almost C$1.8 billion ($1.2 billion) in high-interest deposits in five weeks, draining the Toronto-based company of funds used to finance mortgages. The company said it’s facing liquidity issues because of reputational concerns raised by the Ontario Securities Commission allegations, as well as a class action lawsuit announced earlier this year. The lack of a chief executive officer and chief financial officer is also hurting, the company said.

High-interest savings plummeted to C$134 million as of May 9 from $1.9 billion at March 31, the company said. Home Capital also lost C$344 million in cashable GICs, or guaranteed investment certificates. Tightening lending criteria and broker incentive programs will lead to a decline in originations and renewals going forward, the company said. The lender’s liquid assets are about C$1.01 billion as of May 10, it said in a separate statement Thursday. It had drawn C$1.4 billion of a C$2 billion rescue loan from an Ontario pension fund that carries an effective interest rate of 22.5%, the firm disclosed. The company also sold a C$154 million portfolio of preferred shares to raise cash.

Brussels is a cesspit obsessed with power politics, not with representing Europeans.

• Open Letter to Theresa May: Annul The Phoney Negotiations! (Varoufakis)

Dear Mrs May [..] While the clock is ticking away, and your country is caught up in pre-election fever, there are two potential mistakes I wish to warn against: First, the belief that a strong mandate on June 8 will enhance your ability to negotiate. Second, that meaningful negotiations are possible within the less than two years left after the triggering of Article 50. Your mandate will, I believe, enrage Brussels in proportion to its magnitude and steel their preordained determination to frustrate the negotiations in order to procure a mutually disadvantageous outcome. Why would they pursue mutual disadvantage? Because faced with a choice between an agreement that is to the advantage of the peoples of Europe and one that bolsters their own power within the EU institutions at the expense of Europe’s social economies, the Brussels establishment, and the powerful politicians behind them, will choose the latter every time.

In 2015 the proposals I was tabling, of a moderate Greek public debt restructure, lower tax rates and deep reforms, would have allowed the EU to reclaim more of European taxpayers’ loans to Greece. Except that getting back their taxpayers’ money was lower on their list of priorities than signalling to the Spaniards, the Irish, the Italians etc. that if they dared to elect a government promising to challenge the EU’s authority, they would be crushed. Thankfully, Britain is too rich to crush. Alas, Britain is not too big to be pushed into a disadvantageous form of Brexit as a deterrent to other Europeans voting against the edicts of the Brussels apparatchiks. The political utility to the Brussels establishment of leading the UK-EU negotiations to impasse is greater than any disutility they might experience from watching European people and businesses lose out.

If I am right, negotiations will be an exercise in futility and frustration. Barnier’s two-phase negotiation announcement amounts to a rejection of the principle of … negotiation. He is, effectively, saying to you: First you give me everything I am asking for unconditionally (Phase 1) and only then will I hear what you want (Phase 2). This is nothing short of a declaration of hostilities and, moreover, of his lack of a mandate to negotiate with you in good faith. Moreover, if you try to bypass Brussels, in order to communicate directly with, say, Angela Merkel, you will be given the EU runaround (i.e. Merkel refers you to Juncker, who refers you to Barnier who suggests you go back to Merkel, and so on ad infinitum). Meanwhile, the leaks about your ministers’ “lack of preparedness” will be flooding out of the meeting rooms as part of a propaganda war of attrition.

As long as the UK is as splintered as it is now, its economy will be in danger.

• Pound Stumbles As Bank Of England Releases Gloomy Economic Report (Pol.)

Less than a month ahead of the U.K. general election, the Bank of England published a gloomy report indicating British families’ finances are being squeezed that sent sterling tumbling. The BoE’s latest quarterly inflation report, published Thursday, points to a stronger-than-expected squeeze in real incomes which would translate into decreased household spending. The report also shows inflation continuing to climb above the central bank’s 2% target, and is expected to hit close to 3% by December, as the fall in the value of sterling has raised import prices and started to feed through to the real economy. Economic growth in the first quarter of this year was also weaker than expected, the BoE said.

Sterling fell sharply against the dollar after the report was released, losing half a cent to $1.288. In a warning to the British government, the central bank said, “The outlook for U.K. growth will continue to be influenced by the response of households, companies and financial market participants to the prospect of the United Kingdom’s departure from the EU including their assumptions about the nature and timing of post-Brexit trading arrangements. The Bank of England also Thursday decided to leave interest rates and the levels of monetary stimulus untouched. Its monetary policy committee voted seven to one to maintain the BoE’s benchmark rate at 0.25%, while unanimously backing the level of U.K. government bond purchases at £435 billion, and corporate bond buying at up to £10 billion.

Fun with numbers.

• Macron Spells the End to the Global Baby-Boomer Rule (BBG)

President-elect Emmanuel Macron will still be seven months short of his 40th birthday when he takes power on Sunday, putting him within a year of France’s median age. While voters often pick experience over youth, France chose a political rookie to chart a new course after successive baby-boomers from the establishment parties oversaw a decade of stagnation. The country’s youngest head of state since Napoleon Bonaparte is also the only leader from the old Group of Eight nations who can claim to be the same age as his people – 70-year-old Donald Trump has the biggest gap at 32 years older than the median American. Macron will get to compare notes with his G-7 peers later this month in Italy.

Yes, Le Pen was right. Merkel rules France.

• European Monotony (K.)

When Alexis Tsipras became prime minister in 2015 he raised the hopes of the radical left across Europe. But after six months, the turnaround of the SYRIZA-Independent Greeks coalition government was complete, as it adapted to the European order of things. The conclusion is that guerrilla talk is good for coffee shops and that politics and policy are formed and enforced elsewhere. One might say that this sort of situation is confined to decadent and incoherent Greece, or that it occurred because of leftist adventurism. But possibly not. Because we all saw what happened in France. It was basic restraint that saved all those who were not enthralled by the rise of the extreme right.

At the end of the day, the only thing that Marine Le Pen achieved was to secure a little more than a third of the support of French voters, doubling the percentage received by her father Jean-Marie Le Pen in 2002, and to lift the National Front from the fringe and turn it into a political force. But we have better things to preoccupy ourselves with. During the election campaign, Emmanuel Macron projected himself as someone who will save France from the specter of the far right, but also as someone who aimed to change the profile of Europe. And immediately after his election, he proposed a way out of Europe’s dead end, but that was immediately rejected by Germany.

Manfred Weber from Bavaria, who pummeled Tsipras in the European Parliament, said that Macron can talk about reforming Europe only when he has proved himself capable of implementing reforms in France. More condescendingly, German Finance Minister Wolfgang Schaeuble said Macron’s proposals were impossible to implement. Given this, there is a danger that Le Pen will be vindicated in her prediction that if she was not elected president, then France would be run by another woman, Angela Merkel. The most likely outcome is that Macron will realize that talk of changing Europe is alright for the legendary La Rotonde brasserie in Paris’s 6th arrondissement, where he celebrated his victory in the first round of the elections. Something similar happened to Tsipras on the other side of the political spectrum. Because, at the moment, Europe is Germany and everyone else.

High time for safe zones in Syria, Libya and beyond. But that would hurt arms sales.

• Anxiety Mounts As Italy Moves To Get More Migrants Out (AFP)

Behind the high fences of the repatriation centre at Ponte Galeria, just down the road from Rome’s Fiumicino airport, dozens of women sit outside, waiting for word on whether they will have to leave Italy. But as the government steps up its efforts to send more migrants home, many who pinned their hopes on asylum appeals are growing increasingly worried. This week an official decree paved the way for the creation of 11 more repatriation centres capable of housing 1,600 people pending deportation, on top of the four currently in operation. At Ponte Galeria, in courtyards easily mistaken for cages, Khadigia Shabbi, 47, can barely hold back her tears. “Here we are dying,” the former Libyan university lecturer says. Arrested in Palermo at the end of 2015 and convicted of inciting terrorism, Shabbi protests her innocence and has requested asylum.

She is not alone. Half of the 63 women at Ponte Galeria, which AFP was able to visit, have made similar requests. Several are from Nigeria, having crossed Libya to reach Italy. But there are also Ukrainians and Chinese. The country is sheltering more than 176,000 asylum-seekers, with about 45,000 migrants arriving since January 1 – a 40% rise on the same period last year – and officials are bracing for another summer of record arrivals. To cope with the influx – and to deter others from coming – Interior Minister Marco Minniti pushed through parliament last month a plan to increase migrant housing and provide new resources for expelling those who have come only to seek work. The plan includes creating fast-track asylum appeal courts for the roughly 60% of migrants who have their initial requests denied, in order to reach a binding decision that gets them out of the country sooner.

Between January and April, Italy expelled 6,242 people who did not have the right to stay, an increase of 24% on the same period last year. But the figures include more than just people rescued from the overcrowded boats coming daily from Libya who have failed in their asylum requests. Many were sent home directly because of repatriation agreements, such as those with Tunisia, Egypt or Morocco, while others were expelled after overstaying their student or tourism visas. But despite Italy’s new efforts to deter migrant arrivals, many say they won’t give up trying. “If they expel me, I’ll come back afterwards. I say this honestly — there is nothing for me back there,” said one woman at Ponte Galeria.

US pressure may be the only way out for Greece.

• G7 Finance Chiefs Can’t Agree On Trade, So They Talk About Greece (BBG)

Group of Seven finance chiefs don’t see eye-to-eye on trade, so they’re reverting to a default issue in economic diplomacy: Greece. Officials arriving on Thursday for talks in the Southern Italian port of Bari – a crossroads of commerce for more than two millenia – downplayed any focus on their festering disagreement after two abortive Group of 20 discussions this year suggested the Trump administration won’t sign up to the long-existing global consensus on free trade. That leaves sideline talks on Greece as the most fruitful arena for talks for now. On Wednesday, a senior U.S. Treasury official said they are looking for Europe to take the lead in solving the country’s debt problem. Informal talks on Greece were held on Thursday night, according to German Finance Minister Wolfgang Schaeuble.

His nation, together with Italy, France, the IMF and the ECB make up the so-called Washington Group. “Trade is explicitly off the table – they’re not going to clinch anything at all,” said Isabelle Mateos y Lago at BlackRock. But on Greece, “this is the right grouping within which to reach an agreement on some of the more political aspects.” Talks on easing Greece’s debt load have been picking up steam amid hopes of striking a deal later this month, with officials targeting the May 22 meeting in euro-area finance ministers in Brussels. Among the preferred options is the use of leftovers from the country’s latest euro-area-backed bailout to repay about €12.4 billion of IMF loans to Greece outstanding, according to EU officials. “We’ll carry on working on this debt relief package,” IMF Managing Director Christine Lagarde said on Friday. “We certainly hope that the Europeans will be far more specific in terms of debt relief which is also an imperative.”

That so-called ‘Growth’ is achieved because Greece raises taxes and cuts pensions for its poorest, and sells its assets for pennies on the drachma. But that is not growth. That is scorched earth.

• Greek Economy to Grow Over 2% in 2017 – Economy and Development Minister (BBG)

Greece is confident that the country’s economic output will exceed 2% in 2017 boosted by investments, privatizations and exports, Economy and Development Minister Dimitri Papadimitriou said. This year will be “the year of real growth in Greece,” Papadimitriou said in a May 10 interview in Nicosia, Cyprus, at the annual meeting of the European Bank for Reconstruction and Development. With the exception of 2014, Greece’s economy shrank every year since 2008. The IMF in April cut its forecast for 2017 Greek economic growth to 2.2% from 2.8%. The European Commission revised earlier today its estimate for the Greek growth rate to 2.1% from 2.7%. Papadimitriou cited committed investments for 2017 of €300 million by Philip Morris International and €500 million by Hellenic Telecommunication as well as applications to make investments worth €1.9 billion following the introduction of new legislation that provides incentives to investors. He also highlighted higher industrial production, increased exports and a rise in employment.

Greece will also complete in 2017 an “ambitious” privatization program worth over €2 billion that mainly comprises regional airports, the country’s second-largest port of Thessaloniki, the national railroad operator Trainose and units of state-controlled Public Power Corp., the largest electricity supplier, Papadimitriou said. With almost one-quarter of Greeks without work in the fourth quarter of 2016, or 23.6%, the highest in the EU, Greece is targeting a fall in the unemployment rate by 2020/21 to the euro-area average of 12% through targeted programs for job creation, Papadimitriou said. The final conclusion of the review of Greece’s bailout program with the country’s international creditors will see the nation’s sovereign bonds included in the ECB’s asset purchase program that will mean Greece will be like “a normal country and every other member of the euro zone,” Papadimitriou said.

Growth, you said? Both sides are making up numbers that suit their book. And in the end, Greece loses.

• European Commission Slashes Greece’s Economic Forecasts (GR)

The European Commission forecast for Greece’s economic figures is not as optimistic as the one presented by Athens. Specifically, the European Commission sees growth of 2.1% of GDP in 2017 and 2.5% in 2018 (compared with 2.7% and 3.1% respectively as the Greek government projected). The government deficit is projected to fall to 1.2% of GDP in 2017 and to a surplus of 0.6% in 2018. In the Commission’s winter forecast, the deficit was slightly lower for 2017 (1.1%) and the surplus slightly higher for 2018 (0.7%). Regarding the sovereign debt, the forecasts for the decline of the state debt are also more conservative than the Commission’s winter forecasts.

It is estimated to drop from 179% of GDP in 2016 to 178.8% in 2017 (177.2% in winter forecasts) and 174.6% of GDP in 2018 (170.6% in winter forecasts). At the same time, unemployment numbers differ, as it is estimated that from 23.6% in 2016 it will fall to 22.8% in 2017 (compared with 22% in the winter forecasts) and 21.6% in 2018 (compared to 20.3% in winter forecasts). Inflation is expected to be 1.2% in 2017 and 1.1% in 2018. Finally, estimates of investment growth are also mitigated by lower growth. Specifically, investment growth is projected to increase by 6.3% in 2017 (compared with 12% in the winter forecasts) and 10.8% in 2018 (compared with 14.2% in winter forecasts).

Schaeuble blames Greece for not exiting the Eurozone in 2015. Like the EU would have let them. The world on its head.

• Schaeuble Says Greece Needs Reforms, Defends 2015 ‘Timeout’ Idea (K.)

Structural reforms are key to membership of the euro area, German Finance Minister Wolfgang Schaeuble has said while defending his 2015 offer of a Greek euro “timeout.” “If a country does not want to leave [the euro], then it has to make structural reforms – like Greece has,” Schaeuble said in an interview with Italian newspaper La Repubblica published Thursday. “With the euro, the time is over when some countries could increase their competitiveness through currency devaluation. This is a political short-cut,” he said. Asked about his proposal for a temporary Greek exit from the eurozone, put forward in the dramatic summer of 2015, the German finance minister defended his idea. “You know what [Italian Economy Minister] Pier Carlo Padoan said in public: an overwhelming majority of finance ministers were convinced that it would be better if Greece were temporarily out of the euro,” Schaeuble said. “It was Greece that decided otherwise. We are now making an effort to make sure that the third aid package is a success,” he said.

Remember 40% of Greek businesses don’t expect to survive 2017.

• One In Six Greek Businesses Are Late Payers – Central Bank Chief (Amna)

About one in six businesses in Greece has the characteristics of a late payer, Bank of Greece Governor Yannis Stournaras said on Thursday, addressing an audience at the Federation of Industries of Northern Greece (FING) in Thessaloniki. Stournaras said it is urgent to address the problem of non-performing loans (NPLs), saying it should be a priority among the reforms discussed between Greece and its lenders, as it is a very significant obstacle to economic recovery. “This is the biggest challenge facing today, not just the banking system but the Greek economy,” he said, adding that according to a conservative estimate based on a sample of 13,000 businesses with loans over one million euros, an average of one in six has the characteristics of a bad payer.

He said there are indications that the analogy is significantly higher for smaller businesses and households. “But this will change in the immediate future with a series of initiatives that have already underway to address the aforementioned causes and which have hindered banks’ efforts to resolve the problem for years,” he said. Stournaras also expressed confidence that the approval of the prior actions by the parliament agreed during the second program review will open the way for the disbursement of the next loan tranche from the Eurogroup on May 22. “The financial markets are already expecting this result,” he said.

“Somebody’s going to suffer. Should it the wealthy billionaires and the bankers, or should it be the Greek workers? Well, the Greek workers are not the IMF’s constituency.”

• Somebody’s Going To Suffer: Greece’s New Austerity Measures (Michael Hudson)

Michael Hudson: I wouldn’t call it a negotiation. Greece is simply being dictated to. There is no negotiation at all. It’s been told that its economy has shrunk so far by 20%, but has to shrink another 5% making it even worse than the depression. Its wages have fallen and must be cut by another 10%. Its pensions have to be cut back. Probably 5 to 10% of its population of working age will have to immigrate. The intention is to cut the domestic tax revenues (not raise them), because labor won’t be paying taxes and businesses are going out of business. So we have to assume that the deliberate intention is to lower the government’s revenues by so much that Greece will have to sell off even more of its public domain to foreign creditors. Basically it’s a smash and grab exercise, and the role of Tsipras is not to represent the Greeks because the Troika have said, “The election doesn’t matter. It doesn’t matter what the people vote for. Either you do what we say or we will smash your banking system.” Tsipras’s job is to say, “Yes I will do whatever you want. I want to stay in power rather than falling in election.”

Sharmini Peries: Right. Michael you dedicated almost three chapters in your book “Killing the Host” to how the IMF jjunkeconeconomists actually knew that Greece will not be able to pay back its foreign debt, but yet it went ahead and made these huge loans to Greece. It’s starting to sound like the mortgage fraud scandal where banks were lending people money to buy houses when they knew they couldn’t pay it back. Is it similar?

Michael Hudson: The basic principle is indeed the same. If a creditor makes a loan to a country or a home buyer knowing that there’s no way in which the person can pay, who should bear the responsibility for this? Should the bad lender or irresponsible bondholder have to pay, or should the Greek people have to pay? IMF economists said that Greece can’t pay, and under the IMF rules it is not allowed to make loans to countries that have no chance of repaying in the foreseeable future. The then-head of the IMF, Dominique Strauss-Kahn, introduced a new rule – the “systemic problem” rule.

It said that if Greece doesn’t repay, this will cause problems for the economic system – defined as the international bankers, bondholder’s and European Union budget – then the IMF can make the loan. This poses a question on international law. If the problem is systemic, not Greek, and if it’s the system that’s being rescued, why should Greek workers have to dismantle their economy? Why should Greece, a sovereign nation, have to dismantle its economy in order to rescue a banking system that is guaranteed to continue to cause more and more austerity, guaranteed to turn the Eurozone into a dead zone? Why should Greece be blamed for the bad malstructured European rules? That’s the moral principle that’s at stake in all this.

[..] Yanis Varoufakis, the finance minister under Syriza, said that every time he talked to the IMF’s Christine Lagarde and others two years ago, they were sympathetic. They said, “I am terribly sorry we have to destroy your economy. I feel your pain, but we are indeed going to destroy your economy. There is nothing we can do about it. We are only following orders.” The orders were coming from Wall Street, from the Eurozone and from investors who bought or guaranteed Greek bonds. Being sympathetic, feeling their pain doesn’t really mean anything if the IMF says, “Oh, we know it is a disaster. We are going to screw you anyway, because that’s our job. We are the IMF, after all. Our job is to impose austerity. Our job is to shrink economies, not help them grow. Our constituency is the bondholders and banks.” Somebody’s going to suffer. Should it the wealthy billionaires and the bankers, or should it be the Greek workers? Well, the Greek workers are not the IMF’s constituency. It says: “We feel your pain, but we’d rather you suffer than our constituency.”

Debt Rattle June 25 2015

Jun 252015

June 25, 2015 Posted by Raúl Ilargi Meijer at 8:48 am Finance Tagged with: deadlock, debt, EU, food, Greece, Japan, liquidity, phony, risks, Troika Comments Off

Lewis Wickes Hine ‘Hot dogs’ for fans waiting for gates to open at Ebbets Field 1920

• Americans Throw Out $165 Billion Worth Of Food Every Year (MarketWatch)

• Europe, A Big Phony (Costas Iordanidis)

• Greek Problems Mask The Rising Risks In Italy And France (Satyajit Das)

• Britain Would Not Survive A Vote For Brexit (FT)

• Greece: A Deal Nobody Believes In (Paul Mason)

• Troika’s Red Ink Tells Its Own Story (Guardian)

• Greek Syriza Official Says Lenders’ Proposals ‘Blackmail’ (Reuters)

• Last-Ditch Greek Rescue Hopes; Tsipras Faces Austerity Ultimatum (Telegraph)

• Greece Debt Crisis Talks End In Renewed Deadlock (Guardian)

• Greece Rejects Creditors’ Counter-Proposals (AFP)

• How Draghi Shifted ECB Crisis Tactic Amid Greek Brinkmanship (Bloomberg)

• To Potami Leader Warns Tsipras Over Bailout Reshuffle (FT)

• Martin Schulz, The Man Who Would Be Caliph (Neurope)

• IMF Must Help Europe With ‘Aggressive’ Athens: Sinn (CNBC)

• US Credit Card Debt Grew At 11.5% In April, Fastest In Years (Forbes)

• Three Words Count in Bonds: Liquidity, Liquidity, Liquidity (Bloomberg)

• Toyota’s Drug Problem, and Japan’s (Pesek)

• How WikiLeaks Could Help Precipitate The Fall Of The Saudi Empire (RT)

Inherent in the system design.

• Americans Throw Out $165 Billion Worth Of Food Every Year (MarketWatch)

Americans are concerned about wasting food — yet they just can’t seem to stop throwing it out. Some 76% of households say they throw away leftovers at least once a month, while 53% throw them away every week, according to a survey released Wednesday of 1,000 consumers by market research firm TNS Global on behalf of the American Chemistry Council. (The latter is a trade organization for the U.S. plastics industry and so has a vested interest in people using its products to preserve food.) Despite throwing out food, 70% of people say they are bothered by the amount of food wasted in the U.S. Respondents estimated wasting $640 in household food each year — but U.S. government figures estimate people waste closer to $900.

Previous reports suggest even more people throw out unwanted or expired food. Over 90% of Americans may be prematurely tossing food because they misinterpret expiration dates, according to a separate 2013 study released by Harvard Law School’s Food Law and Policy Clinic and the Natural Resources Defense Council, or NRDC, a nonprofit environmental action group. Phrases like “sell by,” “use by,” and “best before” are poorly regulated and often misinterpreted, the report found: “It is time for a well-intended but wildly ineffective food date labeling system to get a makeover.”

Faulty expiration-date rules are confusing at best and, according to another report released this month by Johns Hopkins Bloomberg School of Public Health, the desire to only eat the freshest food and food safety concerns are the two main reasons for throwing it out. “Sell by” dates are actually for stores to know how much shelf life products have. They are not meant to indicate the food is bad. “Best before” and “use by” dates are for consumers, but they are manufacturers’ estimates as to when food reaches its peak. For most food, manufacturers are free to determine the shelf life for their own products.

A different angle from mine, but the same conclusion.

• Europe, A Big Phony (Costas Iordanidis)

On September 11, 2001, the US was the target of an unprecedented terrorist attack. But the country quickly regained its composure. The Americans reacted in the way they felt was the most appropriate, as a unified country ready to defend its vital interests. On September 15, 2008, Lehman Brothers, the fourth-largest investment bank in the US went bankrupt, but the United States bounced back, some way or another, proving itself to be a country with a sovereign currency and strong leadership. Later, cities in California defaulted one after the other, similarly to other US states which had also gone bankrupt in the past. The issue of exiting the dollar was never raised.

Of course the US is a unified country, with a single, sovereign currency, the most powerful and advanced war machine ever to exist in the history of mankind, while the European Union is a big phony. The bloc’s biggest achievement, the euro, was never a sovereign currency in any country, not even in Germany, although it was developed based on the latter’s fears and old ghosts. Greece went bankrupt in 2010 and the country which accounts for just 2% of the eurozone’s GDP created major panic. Europe’s gigantic bureaucracy was deemed insufficient to devise a plan for dealing with the problem. And so Germany called for the IMF to intervene.

Europe looks down on Alexis Tsipras’s government, and not unjustly, for its obsessions, amateurism and hard to justify delays – it was the same, although to a lesser extent, with previous Greek governments. But what is emerging from Brussels right now is positively morbid. How can a eurozone country and government leaders publicly state that proposals submitted by the Greek administration form a “basis” for discussion and have the IMF take it all back a few days later. Tsipras may well be leading a group of unruly and at times rude associates, but the eurozone leadership’s image is not far from that of a group which changes its mind depending on the whims of one of the three institutions. By the way, Antonis Samaras’s government was brought down because of the IMF’s obsessions.

In any case, this is where things stand right now. Wednesday night saw yet another impasse. Even if we assume that the negotiations are successfully completed on Thursday, the damage done to the notion of the euro is very serious. One way or another, the wall put up by Russia excludes any EU economic expansion to the east. Meanwhile, Germany’s dangerous expansion is being averted for the third time – only this time due to the euro. We Greeks, but also our partners, should stop pretending. The current dynamic lies outside Europe.

Nuclear.

• Greek Problems Mask The Rising Risks In Italy And France (Satyajit Das)

According to John Maynard Keynes “the expected never happens; it is the unexpected always”. Obsessed with the problems of Greece and the European periphery, financial markets are ignoring the rising risks of the core, especially Italy and France. Italy and France face mounting problems of high debt, slow growth, unemployment, poor public finances, lack of competitiveness and an inability to undertake necessary adjustments. Reductions in energy prices combined with low borrowing costs and a weaker euro, engineered by the ECB, cannot hide deep-seated and unresolved problems forever. Italian total real economy debt (government, household and business) is about 259% of gross domestic product, up 55% since 2007. France’s equivalent debt is about 280% of GDP, up 66% since 2007.

This ignores unfunded pension and healthcare obligations as well as contingent commitments to eurozone bailouts. Italy is running a budget deficit of 2.9%. Government debt is around €2.1tn, or 132% of GDP. French public debt is just above €2tn, or 95% of GDP. The current budget deficit is 4.2% of GDP. France’s budget has not been balanced in any single year since 1974. Italy’s economy has shrunk about 10% since 2007, as the country endured a triple-dip recession. Italy’s unemployment is more than 12%, with youth unemployment about 44%. French GDP growth is anaemic, with unemployment above 10% and youth unemployment of more than 25% Trade performance is lacklustre. Italy’s current account surplus of 1.9% reflects deterioration of the domestic economy rather than export prowess.

France’s current account deficit is about 0.9% of GDP, reflecting a declining share of the global export market. Italy and France’s problems are structural, rather than attributable to the eurozone debt crisis. High wages, inflexible labour markets, generous welfare benefits, large public sectors and restrictive trade practices are major issues. In the World Economic Forum’s competitiveness rankings, Italy and France ranked 49th and 23rd respectively, well behind Germany (fourth) and Britain (10th). In World Bank studies, Italy and France rank 56th and 31st in terms of ease of doing business. Transparency International ranks Italy 69 out of 175 countries in perceived levels of public corruption, comparable to Romania, Greece and Bulgaria.

The lack of competitiveness is exacerbated by the single currency. Italy and France faced a 15-25% overvalued currency until the recent decline in the euro. Denied the historically preferred option of devaluation of the lira or franc to improve international competitiveness, both countries have relied increasingly in recent times on debt-funded public spending to maintain economic activity and living standards.

Cameron’s a side show in Europe, can’t get any attention.

• Britain Would Not Survive A Vote For Brexit (FT)

Promising a referendum on Britain’s place in Europe was always a rash gamble — a tactical swerve blind to the strategic consequences. The stakes have risen. The rest of Europe does not want to see the Brits depart, but the EU would muddle on. For the UK, the choice has become existential. If Britain leaves Europe, Scotland will leave Britain. The union of the United Kingdom would not long survive Brexit. The referendum was offered to appease troublesome eurosceptics in David Cameron’s Conservative party. Some hope. There are signs the prime minister has begun to appreciate what is at stake. Never mind talk that he may be remembered as the leader who split his own party, or as the architect of Britain’s retreat from its own continent.

History will be even less kind if it records that a device to quell a Tory rebellion about Europe led to the unravelling of England’s union with Scotland. Mr Cameron’s government has lowered its sights accordingly. When Philip Hammond toured European capitals before the May election 25 of his 27 counterparts told the British foreign secretary that they would not rewrite the basic texts of the EU to accommodate British exceptionalism. Angela Merkel, the German chancellor, is particularly insistent that the Union’s organising “acquis” is sacrosanct. So the prime minister’s pre-election promise of “full-on treaty change” has made way for a more modest set of demands.

Mr Cameron has struck an emollient pose in his own post-election journey around EU chancelleries. What has emerged is a careful choreography for the negotiating process. As he explained it to Ms Merkel, the plan is to avoid undue acrimony and, for the most part, to keep the nitty gritty of negotiations low key and under wraps. The prime minister will stick to generalities at this week’s Brussels summit. His favourite refrain speaks of a “reformed Europe”, whatever that means. He wants an opt-out from the (never defined) treaty aspiration of ever closer union of the peoples of Europe, safeguards for the City of London against eurozone caucusing, and a motherhood-and-apple-pie declaration that Europe is about competition rather than regulation. Finally, he is asking for leeway to restrict in-work benefits paid to workers from the rest of the EU.

And nobody should.

• Greece: A Deal Nobody Believes In (Paul Mason)

The deal Greece wants in Brussels has three parts: budget, debt and public investment. In the flurry of last-minute negotiations, conducted under threat of a bank run and capital controls, the media has been obsessed with the first. The Greek newspaper Kathimerini carried the full Greek proposal on the budget for 2015-17, designed by Syriza’s negotiators to achieve the surplus target the IMF/ECB and EU have imposed. It is, as one of the ministers presenting it told me, “terrible”. To avoid cutting services and pensions further, Syriza is preparing to hit businesses, consumers and employees with a mixture of tax and higher contributions to their pensions. It will also raise the retirement age to 67 over the next 10 years, and severely limit incentives to early retirement.

The proposal meets the top line targets of the lenders but last night they were still haggling over the precise structure of VAT, pensions and “product market reform” – which is the codeword for the IMF’s obsession with Greek pharmacies and bakeries. While the proposal has caused outrage among the Greek conservatives who were only last week calling for a deal, and outrage among Syriza’s left-wing voters, and the 5,000 communist-led pensioners who staged a march last night, the real problem is bigger. Everything we’ve seen so far suggests it will not work. The lenders, as one senior participant in the talks put it to me, “do not do macroeconomics”. The models used in the EU’s negotiations assume that if you whack an €8bn tax rise on to an economy in recession it will at the very least only shrink by €8bn, and may even grow.

But the experience of Greek austerity – and this tax package is simply left austerity – shows you have to consider the “multiplier effects”. The IMF has already said its own model on this was flawed, and that the macroeconomic effect of cutting one euro could be not 50 cents but more like €1.50. The reason the IMF and EU are trying to tinker with stuff like VAT and bakeries is because they suspect that a switch from harsh spending cuts to harsh, redistributive tax rises will have the same overall impact: the economy will shrink and the debt will get larger. But a redistributive programme is all Syriza can sell to the people who voted for it. When they drew up this proposal the Greeks did so in the knowledge that it would need tens of billions of debt relief and tens of billions of structural funding from the EU to cushion the blow.

But the lenders are resisting. When it comes to debt, as one participant described it to me, the lenders are “each at war with the other”. The IMF wants debt write-offs; the ECB wants no debt write-offs. The proposal being discussed is to swap €27bn of debt Greece owes to the ECB into a programme called the ESM, where redemptions are decades away and interest rates low. It would mean paying the ECB out of a fund owned by national governments. I understand that, without some clear indication that debt relief is on the agenda, the Greeks cannot sign. Likewise, they are determined there should be an agreement to release structural funds for development projects from the European Commission.

Red lines vs red ink.

• Troika’s Red Ink Tells Its Own Story (Guardian)

The red ink told its own story. Greece’s creditors looked at the plan submitted by Alexis Tsipras to end his country’s debt crisis and found it wanting. Like a teacher dealing with an obtuse pupil, the message in the revised document sent back to the Greeks was simple: this is a shoddy piece of work. Do it again. Without question, this makes life tough for the Greek prime minister, who thought the concessions offered on Monday were as much as he could deliver politically. Tsipras bridled at the demands from the troika to cross all his red lines and that means the crisis is back on again.

Athens should not have been entirely surprised by the response given that the IMF – one third of the troika – thinks a repair job on the public finances should be structured so that 80% of the improvement comes through spending cuts and 20% from tax increases. The plan put forward by Tsipras was skewed in the other direction. Of the €7.9bn (£5.6bn) that the Greek government said the plan would raise, 92% came from tax increases. In the unlikely event that the extra revenues were collected in full, the IMF believes the one-off levy on bigger businesses coupled with the increases in corporation tax would hinder growth. It thinks the Greek plan will only add up if there are immediate cuts in pensions and higher VAT on restaurants and medical supplies.

Olivier Blanchard, the IMF’s chief economist, explained its reasoning earlier this month. Greece’s creditors, he said, were prepared to accept that the state of the economy meant it was now impossible to meet the target of running a 3% primary budget surplus (revenues minus spending, excluding debt interest payments) in 2015, and that a lower 1% goal would now be acceptable to creditors. “We believe that even the lower new target cannot be credibly achieved without a comprehensive reform of the VAT – involving a widening of its base – and a further adjustment of pensions”, Blanchard said in a blogpost.

“There cannot be a deal without a substantial reference and specific steps on the issue of debt..”

• Greek Syriza Official Says Lenders’ Proposals ‘Blackmail’ (Reuters)

A senior official of Greece’s ruling Syriza party attacked the latest proposals from international lenders as “blackmail” on Thursday, highlighting the deep divisions between Athens and its creditors as wrangling continued over a bailout deal. “The lenders’ demand to bring annihilating measures back to the table shows that the blackmail against Greece is reaching a climax,” Nikos Filis, the ruling Syriza party’s parliamentary spokesman told Mega TV. He said the Greek side was maintaining its insistence on debt relief as part of any accord, in comments that were echoed by Labour Minister Panos Skourletis. “There cannot be a deal without a substantial reference and specific steps on the issue of debt,” Skourletis said in an interview with state broadcaster ERT.

“Speculation the EU was seeking political alternatives to Mr Tsipras’s Leftist Syriza government were heightened after leader of Greece’s centrist opposition party, To Potami also met with Brussels officials on Wednesday.”

• Last-Ditch Greek Rescue Hopes; Tsipras Faces Austerity Ultimatum (Telegraph)

Greece’s eurozone future was thrown into fresh turmoil on Wednesday night as talks broke down after creditor powers demanded further austerity measures to release the funds the country needs to avoid a debt default. Dashing tentative hopes that an agreement could be struck at European Union leaders summit on Thursday, a meeting of finance ministers was suspended after only an hour as Prime Minister Tsipras was summoned for further late night talks with his bail-out chiefs. Earlier in the day, Greece’s three lending institutions rejected Athens’ €8bn reform plans, despite widely hailing it as a positive step forward only days ago. Greece now faces an imminent debt default and expiration of its bail-out June 30.

In a five-page set of counter proposals, creditors instead demanded Athens’ Leftist government carry out more spending cuts, abolish exemptions on VAT and implement a root and branch overhaul of its pensions system. The breakdown came after Athens seemed to renege on its previous commitments to end tax privileges for its islands and phase out supplementary pensions for the poorest. But the government was quick to reject the new demands, attacking them as “absurd” and sure to bring “Armageddon” to the beleaguered economy . Having been hauled back to Brussels on Wednesday morning, a wounded Mr Tsipras released an ambiguous statement suggesting ulterior motives behind lenders’ fresh demands.

“The repeated rejection of equivalent measures by certain institutions never occurred before — neither in Ireland nor in Portugal,” he said. “This curious stance may conceal one of two possibilities: either they don’t want an agreement or they are serving specific interest groups in Greece.” Mr Tsipras spent Wednesday holed up in more than seven hours of talks with European Commission president Jean-Claude Juncker, IMF managing director Christine Lagarde, and ECB chief Mario Draghi, as the sides sought to thrash out their differences.

[..] Speculation the EU was seeking political alternatives to Mr Tsipras’s Leftist Syriza government were heightened after leader of Greece’s centrist opposition party, To Potami also met with Brussels officials on Wednesday. After a meeting with EU economics chief Pierre Moscovici, party leader Stavros Theodorakis said the country should “cut down on expenditures and excessive spending in the public sector, so that we can save money without imposing further taxes”. To Potami holds 17 seats in the Greek parliament, a margin which could be crucial in any vote to pass a deal through should it emerge from the fractious round of talks.

The troika keeps leaking to the press, and nobody protests that.

• Greece Debt Crisis Talks End In Renewed Deadlock (Guardian)

Gruelling negotiations between Greece and its creditors broke up without agreement on Wednesday evening as lenders warned the country that it must accept more austerity if it is to avoid defaulting on its debts. A third meeting of eurozone finance ministers in less than a week was called to a halt amid fresh deadlock over an agreement on greater spending cuts in Athens in exchange for rescue funds. The finance ministers will reassemble on Thursday in a bid to achieve an elusive breakthrough, as Greece strives to meet next Tuesday’s deadline for a €1.6bn payment to the IMF. A deal could not be reached at the finance minister’s gathering despite six hours of talks earlier in the day between Alexis Tsipras, the Greek PM, and the heads of the IMF, ECB and EC. Tsipras met the creditors again on Wednesday night.

The meeting ended in the early hours of Thursday with Greece “remaining firm on its position” according to a Greek government official. Tsipras was dressed down at the creditors’ meeting on Wednesday morning, despite having presented new budget proposals on Monday that were generally welcomed as constructive. However, by the time he met the creditors on Wednesday he was being asked to toughen his plans. Tsipras sounded bitter and wounded after the creditors, led by Christine Lagarde of the International Monetary Fund, raised a host of problems with the 11-page policy document he had tabled. A revised version of the Greek proposals, littered with corrections entered in red type by the creditors, was soon leaked to the media.

“The repeated rejection of equivalent measures by certain institutions never occurred before, neither in [bailout countries] Ireland nor Portugal,” said Tsipras. “This odd stance seems to indicate that either there is no interest in an agreement or that special interests are being backed.” Both sides are in a race to cut a deal before five years of bailouts worth €240bn (£171bn) lapse next Tuesday, the same day that Greece must repay the IMF. The Tuesday deadline is doubly pressing because the ECB, which is keeping the Greek banking system on life support, has indicated that it will not support banks if the bailout programme expires without a new agreement in place. Without ECB’s support Greek banks are expected to buckle, which would force the Tsipras government to impose capital controls and threaten the country’s exit from the eurozone.

“This strange position maybe hides two things: either they do not want an agreement or they are serving specific interests in Greece,” Tsipras said.”

• Greece Rejects Creditors’ Counter-Proposals (AFP)

Greece rejected Wednesday “counter proposals” from creditors that were issued in response to Athens’ latest budgetary plan, in light of the IMF’s position, a government source said. Questioned about whether “this counter proposal” – containing even bigger VAT tax hikes and public spending cutbacks – had been rejected by the radical left Greek government, the source replied: “Yes.” Creditors are calling for early retirement to be abolished and an increase in the retirement age from 62 to 67 by 2022, and not 2025, according to plans published on a leftist website and confirmed by the source. They are sticking to a demand for a rate of 23% for VAT, or value-added tax, for restaurants, instead of 13% at the moment. Athens is fearful over the impact on its valuable tourism sector.

Creditors also propose to increase the level of corporation tax to 28%, instead of the Greek plan to raise it to 29% from 2016 onwards. The current level is 26%. And they want defence expenditure to be slashed by 400 million euros instead of the proposed 200 million euros. Creditors also seek the removal of special VAT rates for residents of the Aegean islands. Earlier Wednesday, Greek Prime Minister Alexis Tsipras launched a scathing attack on the IMF for rejecting Greek reform proposals before arriving in Brussels, denting hopes of a final deal. The leftist leader hit out at the “strange position” of the creditors just minutes before going into an eleventh-hour meeting with key lenders including IMF chief Christine Lagarde and the European Union.

“This strange position maybe hides two things: either they do not want an agreement or they are serving specific interests in Greece,” Tsipras said. “The repeated rejection of equivalent measures by certain institutions never occurred before – neither in Ireland nor Portugal,” he tweeted, referring to previous bailouts in those two countries. The EU-IMF creditors were due to present Tsipras with their own “common position” in response to the last-ditch list of reform proposals submitted by Athens on Sunday, sources said. The Greek plans aimed to raise some VAT rates and hike business taxes, increase employee and employer pension contributions, and narrow the country’s budgetary gap.

The worst kind of journalism. Greek brinkmanship is the first sign. But not mentioning that the ECB itself went public about capital controls risk, and then provided ELA, is quite another yet. It’s an ugly game.

• How Draghi Shifted ECB Crisis Tactic Amid Greek Brinkmanship (Bloomberg)

Mario Draghi can’t afford to play by the same crisis rules as the European Central Bank did in the past. With Ireland in 2010 and Cyprus in 2013, a threat to withhold aid for lenders forced each country to agree to international bailouts. This time, Greece’s appetite for brinkmanship has so far left the ECB president dependent on Europe’s politicians to deliver the ultimatums, while policy makers have reluctantly kept Greek banks afloat. Through weekly, and now almost daily, doses of liquidity, ECB support for those institutions has given Greece’s government room to negotiate a bailout with creditors until the eleventh hour without imposing capital controls. That’s riled sticklers for rules on the ECB Governing Council, but such pliancy is a price Draghi may have paid to keep the euro intact.

“What strikes me is the patience which the ECB has found in all of this,” said Holger Schmieding, chief economist at Berenberg Bank in London. “This was too much of a political decision for the ECB. Ireland didn’t look like falling out of the euro, and Cyprus was much more marginal. So sometimes you discover a flexibility that you weren’t aware of before.” So-called Emergency Liquidity Assistance for banks has been part of the ECB’s toolkit since its foundation. It was intended to allow authorities to tide over solvent lenders who could neither raise funding in markets nor had collateral for regular ECB tenders. The measure was never meant to save whole countries. That’s what it’s now doing.

While Greece didn’t ask for an increase in assistance on Wednesday, according to a person familiar with the matter, it has needed fresh approval for a higher ELA limit four times in the past week. Via the Greek central bank, the ECB is replacing money withdrawn by depositors fearful that the government can’t agree a deal with its creditors, allowing lenders to rack up an overdraft of almost €90 billion since February. ELA cash loaned against state-guaranteed bank bonds and government debt at its 2012 peak amounted to almost 63% of Greek GDP, far more than the equivalent measure in Ireland or Cyprus. Now, Draghi says total liquidity support to Greece amounts to €118 billion euros, or about 66% of GDP, the highest level of any country in the euro.

They smell power.

• To Potami Leader Warns Tsipras Over Bailout Reshuffle (FT)

Alexis Tsipras will need to reshuffle his governing coalition if he suffers significant defections over a new bailout agreement, the head of Greece’s largest pro-EU protest party has warned. Stavros Theodorakis, leader of centre-left To Potami, said he discussed the possibility of such a reshuffle with Mr Tsipras during meetings last week, and predicted there would be “a lot of objections” from the prime minister’s far-left Syriza party when the measures are put to a vote. “That is something that will be discussed, and Tsipras will face, after passing the agreement through parliament, after he sees which members of his party — or members of his government — did not vote for the agreement,” Mr Theodorakis said in an interview with the Financial Times.

“We do not want to wound the prime minister when he’s in the middle of these hard negotiations,” he added. “But I can say Syriza has a choice: either Syriza will change or it will be beaten.” Mr Theodorakis, a charismatic former television journalist, created To Potami — The River — from scratch ahead of January’s national elections and rode a wave of mainstream protests to secure 17 seats in parliament, the third largest in the 300-seat chamber. Because of his populist credentials, Mr Theodorakis was seen as a natural coalition partner for Mr Tsipras shortly after the election. But because of its overtly pro-EU stance, To Potami was bypassed by Mr Tsipras for the right-wing nationalist Independent Greeks party, which — like Syriza — vowed to reject Greece’s international bailout.

Talked about him yesterday. A tool.

• Martin Schulz, The Man Who Would Be Caliph (Neurope)

There is a French cartoon character, Iznogood, a vizier whose only goal in life is to become Caliph in place of the Caliph… telling everybody he wants to be “Caliph in place of the Caliph”. He is shaken by fits of anger when he realises his goal remains distant. In his comic-book hubris, Iznogood, with his goatee and permanent bad mood, never puts forth his qualities (if any) for the coveted job. He only stomps the ground in irritation and shouts: “I want to be Caliph. I’ve been here long enough”. Martin Schulz has been around for more than 20 years. He first entered the European Parliament in 1994, as a German Socialist MEP, never to leave it again. He has been speaker of the Parliament since 2012, but last year he missed the Caliphate: the presidency of the Commission.

The Commission job is the most prestigious in the EU institutions. The President of the Commission is (almost) the equivalent of a chief of state. One had only to see how Jose Manuel Barroso was blushing and beaming, satisfaction oozing from his pores, whenever he was called “Mr President”. So, Schulz wanted to become Caliph after Caliph Barroso. What were his qualifications for running the Commission and becoming Caliph? Well, first of all, again, he’s been around long enough. He also carries the aura of a martyr: a decade ago, Berlusconi, angered by Schulz’s criticism of him, suggested in a plenary that he, Schulz, would be perfect in the role of a Nazi camp guard, as an extra in a movie. Astonishment: what? Was Schulz already here 10 years ago? Of course he was…

How about his studies? Martin Schulz is a rare case for someone in his position. No studies. Schulz never finished school. He doesn’t even have his Abitur, that German diploma that is as hard to obtain as the one marking the baccalaureate in France. In his youth, he dreamed of becoming a football player, but, as he told the German tabloid Bild, he became an alcoholic instead. He was saved from alcohol by his brother and became a bookseller, and even had his own bookshop for a decade before entering the SPD, the German Social Democrat party. In order to ensure that he might get the presidency of the Commission, he fought hard to have the capitals accept the principle of consulting with the major political groups in the EU Parliament when they nominate the Commission President.

Sinn’s a tool AND a douche.

• IMF Must Help Europe With ‘Aggressive’ Athens: Sinn (CNBC)

Greece’s far-left government have proved “aggressive” in lengthy cash-for-reforms talks, the head of an influential German think tank told CNBC, adding that all of Athens’ bailout supervisors must share the strain of negotiating. “You have seen what kind of wording Greece used during the crisis to really change the mood in Europe and I think it’s fair to say they have been aggressive,” the president of the Ifo Institute for Economic Research, Hans Werner-Sinn, told CNBC on Wednesday. He added: “It is easier for the Europeans if the IMF (International Monetary Fund) shares in the burden of absorbing this attitude, rather than everything being imposed on the other European countries – this is a recipe for hassle and strife.”

Greece is engulfed in debt to both the ECB and the IMF and needs urgent aid to save it from defaulting on a €1.6 billion debt at the end of the month. However, it has fought against creditors’ demands for further economic, social and political cuts and reforms. “The IMF is skeptical about the Greek proposals as I understand. They say the Greeks promised to increase their taxes, but they have not been very good in raising taxes in the past. So it’s more credible if they promise to cut wages or government employees or pensions and that is the issue about they are discussing,” Sinn told CNBC.

In addition to his role at Ifo, Sinn is an adviser to the Germany economy ministry and a professor of economics and public finance at the University of Munich. He is due to retire from Ifo in March 2016. The veteran economist has previously advocated the benefits for Greece of leaving the euro zone and he reiterated this view on Tuesday. “A ‘Grexit’ is a rescue strategy for Greece because the Greek people will, with the drachma (the Greek currency prior to the adoption of the euro) devaluation, then have more demand for their own products. The imported products will become more expensive and they will go to their farmers, for example,” Sinn told CNBC.

Someone’s going to spin this into a recovery.

• US Credit Card Debt Grew At 11.5% In April, Fastest In Years (Forbes)

EDITOR’S NOTE: Forbes launched Secrets From An Ex-Banker: How To Crush Credit Card Debt, our latest eBook. Written by a former banker, this book reveals tips and tricks to get you out of credit card debt within three years.

Secrets From An Ex-Banker: An eBook From Forbes If running from the collection agencies isn’t your exercise of choice, read this book for tips and tricks on how to crush credit card debt. We are a nation addicted to credit card debt. Americans have amassed $857 billion of it. As we begin to forget the 2008 financial crisis, banks have once again started aggressively marketing credit cards. I receive mail every week promising me bonus points, extra cash back and a lifetime of plastic-induced happiness. The marketing is working. In April, credit card debt grew at 11.5%, its fastest pace in years.

Credit cards can be remarkably useful and lucrative spending tools, when used responsibly. If you pay your balance in full and on time every month, you are receiving an interest free loan, often with some airline miles on top. However, over 40% of Americans are not able to pay their balance in full. Instead, they are borrowing money at interest rates that are usually well above 15%. That means the typical family is paying over $1,500 of interest every year. In a world where middle class families feel increasingly squeezed, this is too much money to be lost to interest.

Why do credit cards have this power over us? Why does the average household have more than $10,000 of credit card debt at interest rates well above 15%? And how can we break the cycle and get out of debt? Today I am publishing a Forbes eBook, “Secrets from An Ex-Banker: How To Crush Credit Card Debt.” This book uses my nearly 15 years of insider experience as a credit card executive to help you become debt-free forever. I helped introduce credit cards to the Russian market with Citibank. I ran the UK consumer credit card franchise of Barclays. But now I am focused on using my knowledge of how the industry works to help people avoid the tricks, traps and pitfalls of credit card debt.

And there ain’t none left.

• Three Words Count in Bonds: Liquidity, Liquidity, Liquidity (Bloomberg)

There are three things that matter in the bond market these days: liquidity, liquidity and liquidity. How – or whether – investors can trade without having prices move against them has become a major worry as bonds globally tanked in the past few months. As a result, liquidity, or the lack of it, is skewing markets in new and surprising ways. Spain, for instance, must pay more to borrow money than Italy for 30 years, even though Spain is considered safer by credit raters. Why? The Italian bond market is twice as big as the Spanish one — and, therefore, more liquid. The same thing is happening around the world. Bonds in smaller, less-traded markets like Finland, Singapore and Canada are starting to fall out of favor.

And with the Federal Reserve preparing to raise U.S. interest rates, investors want to know they can sell in a hurry if debt markets turn volatile. “Liquidity is our number-one criteria in country selection,” said Olivier de Larouziere at Natixis Asset Management. Concern liquidity is drying up has intensified as the global bond rout that erupted in April erased more than a half a trillion dollars from sovereign debt and triggered swings some have likened to a once-in-a-generation event. Aberdeen Asset Management Plc has already said it arranged $500 million in credit lines to fund potential withdrawals. In the U.S., regulators will meet with Wall Street firms to discuss how they can prevent post-crisis regulations and central bank policies from sparking a meltdown when the next selloff occurs.

Some investors aren’t waiting to find out. In Spain, where a slump in repurchase agreements and trading of bills sent government-debt turnover in April to lows not seen since at least 2012, they’re starting to demand a bigger premium to own the securities, data compiled by Bloomberg show. Yields on 10-year Spanish bonds reached 2.54 percent on June 16, and rose to the highest versus Italian securities since the end of 2013. Spain’s 30-year bonds are also yielding more than comparable Italian debt. For much of the past year, the relationship was reversed as investors preferred Spain. Part of the shift has to do with the rising cost of trading as liquidity dries up. The difference in yields for buyers and sellers of Spain’s 10-year notes — known as the bid-ask spread — is almost double that in Italy, the data show.

Strong contender for weirdest story of the year.

• Toyota’s Drug Problem, and Japan’s (Pesek)

Toyota has a drug problem. The company and CEO Akio Toyoda are dealing with the fallout from a bizarre case surrounding his newly promoted head of global public relations, Julie Hamp. It all started on June 18, when Hamp, an American who moved to Japan earlier this year, was arrested for allegedly having a controlled drug sent to her from Michigan. The powerful painkiller oxycodone is a relatively common prescription drug in the U.S., but is designated as a narcotic in Japan, where users need permission to import it. Japanese authorities could have chosen to confiscate the 57 pills sent to Hamp and schooled her on local regulations. Instead, they decided to make an example of her in ways that could damage corporate Japan’s efforts to attract foreign talent and diversify its boardrooms.

The day after Hamp’s arrest, Toyoda called a press conference to defend the company’s highest-ranking female executive ever. He launched into a spirited defense, declaring that Hamp hasn’t intentionally broken any laws. Those words came back to haunt Toyoda this week, on Tuesday, when police raided the company’s Toyota City headquarters and its Tokyo and Nagoya offices. The coordinated raids smacked of retribution by the police for Toyoda’s standing by a foreigner over local authorities. What’s even more troubling is that the police made the case public at all. Hamp was forced to do a perp walk on live television. (It led the news on national broadcaster NHK.)

But it’s safe to say the police wouldn’t even have told the media if a male Japanese Toyota executive were allegedly involved in similar lawbreaking. (Japanese law enforcement has never even attempted to arrest officials at Tokyo Electric Power Company for negligent oversight of nuclear reactors at Fukushima, or managers at Takata for selling the company’s faulty airbags.)

Meanwhile, the thrust of the media coverage about Hamp’s ordeal has been cringeworthy. Rather than treat it as an unfortunate aberration, the media have used it as an excuse to pillory companies for trying to attract foreign executives to Japan in the first place. Toyoda’s June 19 press conference was a case in point, filled with insinuating questions: What medical condition does Hamp have that requires pain medication? Why does Hamp live alone? (The answer to that one is that her family hasn’t yet arrived from the U.S.) What is Toyota’s basis for trusting this woman so much? Might this be a harbinger of future problems as diversity efforts increase?

Interesting take.

• How WikiLeaks Could Help Precipitate The Fall Of The Saudi Empire (RT)

Whistleblower group WikiLeaks has released a flurry of official documents lifting the lid on Saudi Arabia’s covert diplomatic apparatus. Not just another scandal, these revelations could bring Saudi Arabia to its knees. While WikiLeaks has seldom shied away from controversy it might just have outdone itself this June as it exposed Saudi Arabia’s grand media scheme to the public, shining a light onto state officials’ unscrupulous dealings as they worked and plotted to silence the truth and manipulate realities to suit their goals. And though many among the public will not be surprised at learning that one of the world’s most violent and repressive governments has actively worked to control the world’s media narrative by applying political and financial pressure upon international news organizations and foreign governments to both forward its agenda and shield its institutions from any political or judicial fallouts.

The sheer depth and breadth of this grand deception will certainly send a few heads spinning. Aided by Al Akhbar, a prominent Lebanese-based newspaper which has remained stubbornly independent despite aggravated pressures, WikiLeaks released last Friday 60,000 classified documents out of a reported half a million leaked diplomatic cables from the Kingdom of Saudi Arabia. Speaking on the content disclosed by WikiLeaks, Kristinn Hrafnsson, a spokesman for the group said “We are seeing how the oil money is being used to increase (the) influence of Saudi Arabia which is substantial of course – this is an ally of the US and the UK. And since this spring it has been waging war in neighboring Yemen.”

While most allies of the kingdom, Britain and the US at the head of the line, have attempted to play down the revelations, arguing the veracity of the leaked documents while redirecting the public’s attention onto other, less sensitive matters, it is pretty evident the kingdom is fast losing its cool. For a country which almost solely relies on control to exist, losing only just a nugget of power can be daunting; especially when the very fabric of the state stands to be obliterated by the very truths which are now being unveiled.