Complacency and incrementalism are traps to avoid
Clear-eyed, bold action is what the world requires if the financial drama is to subside
by: Lawrence Summers
Greece for Grownups
JUL 13, 2015
LONDON – Greece and its European partners may have agreed on a new bailout provision, but how the Greek economic tragedy will actually end remains a mystery. One thing, however, is certain: eurozone governments will end up writing off a large proportion of their loans to Greece. Their refusal to recognize that reality has increased the losses they will suffer.
Greece’s brutal creditors have demolished the eurozone project
Stripped of ambitions for a political and economic union, the bloc changes into a utilitarian project
by: Wolfgang Münchau
They have destroyed the eurozone as we know it and demolished the idea of a monetary union as a step towards a democratic political union.
In doing so they reverted to the nationalist European power struggles of the 19th and early 20th century. They demoted the eurozone into a toxic fixed exchange-rate system, with a shared single currency, run in the interests of Germany, held together by the threat of absolute destitution for those who challenge the prevailing order. The best thing that can be said of the weekend is the brutal honesty of those perpetrating this regime change.
But it was not just the brutality that stood out, nor even the total capitulation of Greece. The material shift is that Germany has formally proposed an exit mechanism. On Saturday, Wolfgang Schäuble, finance minister, insisted on a time-limited exit — a “timeout” as he called it. I have heard quite a few crazy proposals in my time, and this one is right up there. A member state pushed for the expulsion of another. This was the real coup over the weekend: regime change in the eurozone.
The fact that a formal Grexit may have been avoided for the moment is immaterial. Grexit will be back on the table when you have the slightest political accident — and there are still many things that could go wrong, both in Greece and in other eurozone parliaments. Any other country that in future might challenge German economic orthodoxy will face similar problems.
What should the Greeks do now? Forget for a moment the economic debate of the last few months, over issues such as the impact of austerity or economic reforms on growth, and ask yourself this simple question: do you really think that an economic reform programme, for which a government has no political mandate, which has been explicitly rejected in a referendum, that has been forced through by sheer political blackmail, can conceivably work?
The implications for the rest of the eurozone are at least as troubling. We will soon be asking ourselves whether this new eurozone, in which the strong push around the weak, can be sustainable. Previously, the strongest argument against any forecasts of break-up has been the strong political commitment of all its members. If you ask Italians why they are in the eurozone, few have ever pointed to the economic benefits. They wanted to be part of the most ambitious project of European integration undertaken so far.
But if you take away the political aspiration, you may end up with a different judgment. From a pure economic point of view, we know that the euro has worked well for Germany. It worked moderately well for The Netherlands and Austria, although it produced quite a degree of financial instability in both.
But for Italy, it has been an unmitigated economic disaster. The country has seen virtually no productivity growth since the start of the euro in 1999. If you want to blame the lack of structural reforms, then you have to explain how Italy managed decent growth rates before 1999. Can we be sure that a majority of Italians will support the single currency in three years’ time?
The euro has not worked out for Finland either. While the country is considered the world champion of structural reforms, its economy has slumped ever since Nokia lost the plot as the world’s erstwhile premier mobile phone maker. France has performed relatively well during the euro’s early years But it, too, is now running persistent current account deficits. It is not only Greece where the euro is not optimal.
Once you strip the eurozone of any ambitions for a political and economic union, it changes into a utilitarian project in which member states will coldly weigh the benefits and costs, just as Britain is currently assessing the relative advantages or disadvantages of EU membership. In such a system, someone, somewhere, will want to leave sometime. And the strong political commitment to save it will no longer be there either.
Deal on Greek Debt Crisis Exposes Europe’s Deepening Fissures
By STEVEN ERLANGER
JULY 13, 2015
Why Gold Is The Best Defense Against A Global Financial Crisis
Business relationship disclosure: As a lifelong world traveler, Jeff Opdyke has been investing directly in the international markets since 1995, making him one of the true pioneers of foreign trading. He is Investment Director for The Sovereign Society and a weekly contributor to The Sovereign Investor Daily (http://thesovereigninvestor.com/).
ADD TREASURY MARKET VOLATILITY TO LIST OF KNOWN UNKNOWNS
By Jon Hilsenrath
Financial regulators are putting out a report Monday about unusual behavior in the $13 trillion U.S. Treasury bond market. As my colleague Katy Burne explains in a WSJ story today, trading in the market has grown thin and prone to unpredictable lurches in bond yields. It has regulators worried, because it could lead to volatility that hurts the economy and markets when the Fed starts raising interest rates.
Dollar Weaker Ahead of Yellen Testimony, Greek Vote
Few investors made large bets ahead of Fed Chairwoman’s testimony to congress
By James Ramage
Updated July 14, 2015 4:25 p.m. ET
Photo: Manuel Balce Ceneta/Associated
The dollar edged lower against the euro and the yen on Tuesday, as few investors made large bets a day before Federal Reserve Chairwoman Janet Yellen begins her semiannual monetary-policy testimony on Capitol Hill.
In addition, investors held back on currency trades during the session on growing concerns over whether Greek Prime Minister Alexis Tsipras can pass punishing austerity measures through parliament on Wednesday. Failure to do so would likely reignite fears that Greece could exit the euro area and upend markets over the near term.
The dollar slipped 0.1% against the common currency from the previous day, with one euro buying $1.1005 in late-afternoon trade. The U.S. currency also inched down 0.1% to 123.38 Japanese yen.
Earlier in the day, the dollar fell against rivals, as weak U.S. retail sales data for June signaled uneven consumer demand and dimmed expectations for economic growth over the second three months of the year.
U.S. retail sales in June decreased 0.3% from the previous month to a seasonally adjusted $442 billion, the Commerce Department said. That compares with economists’ expectations of a 0.2% rise. Numbers for May and April were also revised lower.
“Investors want to see how those turn out before betting on the euro and the yen right now,” Mr. Cochinos said. “It was only one bad retail sales number, and not sufficient to cause people to change their views or back out of positions.”
General uncertainty about the U.S. economy combined with global worries over the Greek debt crisis, falling commodity prices and China’s stock markets to push back expectations for the first Fed rate increase since 2006 toward the end of the year, or even into early 2016. Higher interest rates would draw yield-hungry investors to the dollar.
Tsipras' Choice: Total Capitulation or Grexit; Text of 4-Page Eurozone Demands
By: Mike Shedlock
Sunday, July 12, 2015
We now have "THE Final Offer Before Grexit" (I think). Of course, more offers will come after Grexit.
Greece has Three Days to "Rebuild Trust" and Do the Following
- Streamline VAT and broaden tax base to increase revenue.
- Upfront comprehensive pension reform
- Adopt Civil Procedure Code with major overhaul of civil justice system
- Safeguard full legal independence of ELSTAT
- Fully implement Treaty on Stability, make Fiscal Council operational before finalizing Memorandum of Understanding (MoU)
- Introduce quasi-automatic spending cuts in case of deviation from targets after seeking advice from Fiscal Council and subject to the approval of the institutions
- Transpose the BRRD within a week with support from European Commission
- Carry out ambitious reforms to fully compensate for the fiscal impact of the Constitutional Court ruling on 2012 pension clause
- Implement a zero deficit clause or mutually agreeable measures by October 2015
- Adopt more ambitious market reforms with a clear timetable for implementation of all OECD toolkit recommendations including Sunday trade, sales periods, pharmacy ownership, milk, bakeries, ferries, etc., etc.
- Privatize electricity network
- Undertake rigorous reviews of collective bargaining, industrial action, and collective dismissals
- Modernize framework for collective dismissals
- Strengthen financial sector including decisive action on non-performing loans
- Eliminate political interference in appointment process and governance of HFSF
On Top of That (Mish note: those were the exact words)
- Develop a significantly scaled up privatization program with improve governance
- Invite an independent body to assess price of assets sold with involvement of the Commission OR transfer 50 billion to an existing external and independent fund like the Institution for Growth in Luxembourg to be privatized over time to reduce debt.
- Modernize and significantly strengthen Greek administration and put in place a program under the auspices of the European Commission, a capacity-building and de-politicization of the Greek administration. The first proposal needs to be provided by July 20.
- To fully normalize working methods with the institutions, the government needs to consult and agree with the institutions on all draft legislation before submitting to parliament or the public. The Eurogroup stresses implementation is the key and welcomes Greek authorities to request by July 20 support for technical assistance.
- Amend or compensate for "roll-back" legislation adopted during 2015 that is counter to the framework of the February 20, 2015 Eurogroup statement.
The above-listed commitments are minimum requirements to start the negotiations with the Greek authorities. However, the Eurogroup made it clear that the start of negotiations does not preclude any final possible agreement on a new ESM programme, which will have to be based on a decision on the whole package (including financing needs, debt sustainability and possible bridge financing).
Mish comment: the above sentence was retyped exactly as written.
Additional Financing Needs
The Eurogroup takes note of the possible financing needs of between €82 billion and €86 billion. The Eurogroup notes the urgent financing needs of Greece and the need for very swift progress in reaching a decision on a new MoU: Estimated amounts are €7 billion by July 20, and an additional €5 billion by mid-August.
Additional Bank Recapitalization Buffer
Given the accute challenges of the Greek financial sector, a new ESM would have to include a buffer of €10 billion to €25 billion for bank recapitalization, of which €10 billion would immediately be available in a segregated account at the ESM.
- The Eurogroup stresses that nominal haircuts on debt cannot be undertaken.
- The Greek authorities reiterate their unequivocal commitment to honour their financial obligations to all their creditors fully and timely.
- Provided all the necessary conditions contained in this document are fulfilled, the Eurogroup and ESM board of directors may mandate the institutions to negotiate a new ESM programme.
In case no agreement could be reached, Greece should be offered swift negotiations on a time-out from the euro area, with possible debt restructuring.
End of Document
Bloomberg sums it up this way: EU Demand Complete Capitulation From Tsipras.
German chancellor Angela Merkel had her choice, and she made it.
- Pony up another €80+ billion to Greece and offer debt relief on top of it, even though a majority of German voters would rather see Greece out of the eurozone.
- Push Greece out of the eurozone.
- Go back against everything he vowed to do and completely give in to Germany, accepting a far worse offer than he had weeks ago
This proposal is in ways a step in the right direction. Indeed France would benefit greatly if it had to adopt the best of the ideas: loosen work rules, make it easier for businesses to fire employees, reduce state spending, increase retirement age, undertake rigorous reviews of collective bargaining, and fully implement the treaty on stability.
Ironically, not even Germany fully implements the treaty on stability. Instead, the previous two bailout agreements relied on massive VAT hikes with no real reforms.
Note that even if Greece does everything asked, the agreement above does not lead to a guaranteed ESM restructuring.
Here is the exact sentence (emphasis in italics mine): "Provided all the necessary conditions contained in this document are fulfilled, the Eurogroup and ESM board of directors may in accordance with article 13.2 of the ESM Treaty, mandate the institutions to negotiate a new ESM programme, if the preconditions of Aricle 13 of the ESM treaty are met on the basis of the assessment referred to in Article 13.1"
If Greece meets the all Eurogroup demands (and the document allows more to come), then if the preconditions in article 13 are met, then the ESM committee may (or may not), tap the ESM.
Meanwhile, Greece is told that no nominal haircuts are coming.
Tsipras' Clear Choice
The wording of this document makes it clear Germany wants to push Greece out of the eurozone.
Please review the final sentence of the proposal. Here it is again: "In case no agreement could be reached, Greece should be offered swift negotiations on a time-out from the euro area, with possible debt restructuring."
If Greece turns down the offer, it gets "swift" negotiations on a "temporary time out", including the possibility of restructuring.
In contrast Greece has no chance of restructuring if it accepts all of the above demands.
Tsipras would be a fool to accept this proposal.
As I have said all along, Greece's best chance is to default, not pay back a cent, and initiate the reforms it needs to grow over the long haul.
Greece does not need the euro. No country does.
Banks Endure Fed Waiting Game
As second-quarter earnings season gets under way, bank stocks look to the Fed to start raising rates
By David Reilly
Updated July 12, 2015 7:57 p.m. ET
Bank stocks have their engines revving. If only the Federal Reserve would flash the green light.
Investors got an idea in the second quarter of what lies in store for bank stocks when interest rates start rising. The KBW Nasdaq Bank Index outpaced the S&P 500 by about seven percentage points in the quarter. That happened as long-term yields marched upward on the increasing probability of the Fed finally beginning to raise rates in September.
Since the end of June, though, global forces—Greece and China, chiefly—have buffeted yields and bank shares. Although that pressure abated at the end of last week, it still has bred doubt about the Fed’s timing. Chairwoman Janet Yellen reiterated Friday that the Fed could raise rates later this year. But Fed-funds futures imply a far greater chance of a first increase in December rather than September.
With J.P. Morgan Chase JPM 1.42 % & Co. and Wells Fargo WFC 1.05 % & Co. kicking off bank-earnings season this week, investors can expect the same sort of push and pull on second-quarter results. There may have been some stabilization of margins given rising yields. Yet revenue growth likely remained tepid. So banks may be forced to squeeze expenses even harder.
On that score, there is reason for optimism. The banking sector is now better positioned for rising rates based on its mix of assets than it has ever been, Goldman Sachs analyst Richard Ramsden noted recently. He estimated the amount of bank assets minus liabilities that reprice within one year is more than twice what is was on the cusp of the rate-tightening cycle in 2003 and 2004.
So even if the wait proves longer than investors were expecting, there may still be reason to cheer the race eventually getting under way.
The Mystery of Vanishing Hotel Reservations
Booking on travel sites like Expedia should guarantee a room, but guests sometimes end up bumped
By Scott McCartney
July 8, 2015 1:21 p.m. ET
Les doy cordialmente la bienvenida a este Blog informativo con artículos, análisis y comentarios de publicaciones especializadas y especialmente seleccionadas, principalmente sobre temas económicos, financieros y políticos de actualidad, que esperamos y deseamos, sean de su máximo interés, utilidad y conveniencia.
Pensamos que solo comprendiendo cabalmente el presente, es que podemos proyectarnos acertadamente hacia el futuro.
Gonzalo Raffo de Lavalle
Las convicciones son mas peligrosos enemigos de la verdad que las mentiras.
Quien conoce su ignorancia revela la mas profunda sabiduría. Quien ignora su ignorancia vive en la mas profunda ilusión.
“There are decades when nothing happens and there are weeks when decades happen.”
Vladimir Ilyich Lenin
You only find out who is swimming naked when the tide goes out.
No soy alguien que sabe, sino alguien que busca.
Only Gold is money. Everything else is debt.
Las grandes almas tienen voluntades; las débiles tan solo deseos.
Quien no lo ha dado todo no ha dado nada.
History repeats itself, first as tragedy, second as farce.
We are travelers on a cosmic journey, stardust, swirling and dancing in the eddies and whirlpools of infinity. Life is eternal. We have stopped for a moment to encounter each other, to meet, to love, to share.This is a precious moment. It is a little parenthesis in eternity.
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