Monday, February 9, 2015

Payback time? Greek PM seeks reparations over Nazi occupation & war-time loan

Prime Minister Alexis Tsipras, referring to Nazi Germany’s four-year occupation of Greece and a forced war-time loan during World War II that saddled the Greek economy in huge debt, wants Berlin to pay reparations.
Tsipras, leader of the anti-austerity Syriza party, said Athens had a “historical obligation” to claim from Germany billions of euros in reparations for the physical and financial destruction committed during Nazi Germany’s occupation of Greece.
Beyond the historical obligation, he said Greece had "a moral obligation to our people, to history, to all European peoples who fought and gave their blood against Nazism," he said in a keynote address to parliament on Sunday.
The Greek leader’s comments have resonated far beyond Athens as they place the issue of his country’s recent massive bailout at the behest of international creditors in a whole new light.
After Nazi forces took control of Greece in 1941, the stage was set for one of the bloodiest confrontations of World War II as Greek resistance fighters put up a fierce struggle to end the occupation.They were powerless, however, to prevent the Third Reich from extracting an interest-free 476 million Reichsmarks loan from the Greek central bank, which devastated the Greek economy.
A 2012 report by the Bundestag, Germany’s lower house of parliament, estimated the value of the loan at US$8.25 billion. Greece, however, puts the value of the loan at €11 billion, the To Vima newspaper reported in January, citing confidential financial documents.

Moscow & Cairo to drop USD, use national currencies in bilateral trade – Putin

Russia and Egypt might soon exclude the US dollar and use their national currencies in the settlement of accounts in bilateral trade, Russian President Vladimir Putin said in an interview to Egyptian media ahead of his Monday visit to the country.
The issue of abandoning the dollar in trade is “being actively discussed,” Putin told Al-Ahram daily newspaper ahead of his two-day trip to Egypt. The Russian president was invited for a bilateral meeting by his Egyptian counterpart Abdul Fattah al-Sisi.

“This measure will open up new prospects for trade and investment cooperation between our countries, reduce its dependence on the current trends in the world markets,” Putin said.

“I should note that we already use national currencies for trade with a number of the CIS [Commonwealth of Independent States] states, and China. This practice proves its worth; we are ready to adopt it in our relations with Egypt as well. This issue is being discussed in substance by relevant agencies of both countries.”
Egypt is a long-time and trusted partner of Russia and the relationship between the two countries has been rapidly developing, the Russian president said.

“The volume of bilateral trade has increased significantly over the past years: In 2014, it increased by almost half compared to the previous year and amounted to more than $4.5 billion,” he said urging for this trend to be strengthened.
He also praised the development of “mutually beneficial and effective” cooperation in the sector of agriculture. “Egypt is the major buyer of Russian wheat, Russia provides about 40 percent of grain consumed in the country; as for us, we import fruits and vegetables.”

Moscow imposed a full ban of EU, US, Australian, Canadian, and Norwegian food exports to Russia on August 7 for one year. Amid Russian sanctions, Egypt said in August that it was ready to boost agricultural deliveries to Russia by 30 percent.

During 2013, Egypt’s deliveries of agricultural products to Russia amounted $440 million, while during the first half of 2014, Cairo supplied $460 million, said the head of the Ministry of Agriculture of the Russian Federation, Nikolay Fedorov in August 2014.

Moscow and Cairo are also engaged in energy, automobile manufacturing and transport cooperation, developing the intergovernmental trade, economic and scientific-technical cooperation commission as well.

During Sisi’s last visit to Russia in August 2014, the two leaders agreed to look at a possibility of creating a free trade zone between Egypt and the countries of the Customs Union. Meeting in the Black Sea resort city of Sochi, the presidents also agreed upon the creation of a Russian industrial zone in Egypt, which will be part of a new Suez Canal project.

Egypt launched a Suez Canal development project worth $4 billion in August 2014. The project envisages the digging of a new canal parallel to the original built 145 years ago with the aim of speeding up traffic along the existing waterway and boosting the country’s economy.

Tuesday, February 3, 2015

History In the Balance: Why Greece Must Repudiate Its “Banker Bailout” Debts And Exit The Euro

Now and again history reaches an inflection point. Statesman and mere politicians, as the case may be, find themselves confronted with fraught circumstances and stark choices. February 2015 is one such moment.
For its part, Greece stands at a fork in the road. Syriza can move aggressively to recover Greece’s democratic sovereignty or it can desperately cling to the faltering currency and financial machinery of the Euro zone. But it can’t do both.
So by the time the current onerous bailout agreement expires at month end, Greece must have repudiated its “bailout debt” and be on the off-ramp from the euro. Otherwise, it will have no hope of economic recovery or restoration of self-governance, and Syriza will have betrayed its mandate.
Moreover, the stakes extend far beyond its own borders. If the Greeks do not take a stand for their own dignity and independence at what amounts to a financial Thermopylae, neither will the rest of Europe ever escape from the dysfunctional, autocratic, impoverishing superstate regime that has metastasized in Brussels and Frankfurt under cover of the “European Project”.
Indeed, the crony capitalist corruption and craven appeasement of the banks and financial markets that have become the modus operandi there are inexorably destroying the EU and single currency. By fleeing the euro and ECB with all deliberate speed, therefore, the Greeks will give-up nothing except the opportunity to be lashed to the greatest monetary train wreck ever recorded.
So Greek Finance Minister Yanis Varoufakis has the weight of history on his shoulders as he makes the rounds of European capitals this week. His task in not merely to renounce the ham-handed “austerity” dictated by the Troika. Apparently even the French are prepared to acknowledge that the hideous suffering that has been imposed on Greece’s less fortunate citizens must be alleviated. Yet the latter is only a symptom of what’s wrong and what stands in the way of a real solution. 
The true evil started with the bailouts themselves and the resulting usurpation by the EU politicians and apparatchiks of both financial market price discovery and discipline and sovereign democratic prerogatives.  Accordingly, the terms of Greece’s current servitude can’t be tweaked, “restructured” or “swapped” within the Brussels bailout framework.
Instead, Varoufakis must firmly brace his interlocutors on the true history and the condition precedent that stands before them. Namely, that the Greek state was effectively bankrupt even before the 2010 bailout, and that the massive amounts of debt piled upon it thereafter was essentially a fraudulent conveyance by the EU. 
Accordingly, Greece’s legitimate debt is perhaps $175 billion based on the pre-crisis euro debt outstanding at today’s exchange rate and the haircut that would have occurred in bankruptcy. Greece’s new government has every right to repudiate the vast amount beyond that because it arose not from the actions of the Greek people, but from the treachery of EU politicians and the Troika apparatchiks—-along with the unfaithful stooges in the Greek parliament and ministries which executed their fraudulent conveyance.
Indeed, the purpose of the massive EU, ECB and IMF loans to Greece was just plain ignoble and corrupt. The European superstate deployed its vast fiscal and monetary powers to make whole the German, French, and Italian banks and other financial institutions which had gorged on Greece’s sovereign debt. For more than a decade, heedless gamblers and lazy money managers and bankers had loaded up on Greek debt bearing yields that superficially bore a premium relative to the German and US treasury benchmarks, but in fact did not remotely compensate for the self-evident credit risk embedded in Greece’s budgetary profligacy. 
All of this was plainly evident. During the years before the crisis and especially under the oligarchy dominated Karamanlis government, Greece’s spending relative to GDP soared. Yet Athens didn’t bother to impose the taxes necessary to pay for its public spectacles, such as the 2004 Olympics, or its vast expansion of the state bureaucracy, its wasteful gorging on German defense equipment or the ever-rising subventions to special interest groups.
Historical Data Chart
Historical Data Chart
Moreover, it was also plainly evident at the time that even as Greece was sinking into public insolvency, its overall economy was on a fast track to crisis, as measured by a soaring current account deficit. In effect, northern European banks were flooding it with radically mis-priced debt, causing a orgy of unsustainable domestic borrowing and spending.
Historical Data Chart
Indeed, during the 10-year run-up to the crisis, loans to private households and businesses soared by 5X. But in the standard Keynesian fashion, the booming investment and consumption spending financed by this debt eruption was not real or sustainable. It just temporarily flattered the GDP figures, making Greece’s actual public debt burden even more onerous than the reported figures—especially after Goldman and other bankers bearing illicit accounting schemes and predatory derivative deals had perfumed the fiscal pig.
Historical Data Chart
The resulting untoward impact of this entire, phony EU financial regime could not be more starkly evident than in the two graphs below. They contrast what was happening to Greece’s true, permanent public debt burden—-with the ability of its profligate politicians to access international debt markets at super-cheap rates.
In fact, Greece had been on a steady path toward bankruptcy for 25 years, but as the EU monetary boom accelerated after the turn of the century and the false yields on its euro denominated debt continued to fall, the nation’s public debt to GDP ratio was soon in terminal territory. The jig was up on its mad-cap leap into phony euro prosperity.
Greek 10-Year Bond Yield
Historical Data Chart
Historical Data Chart
But when the crisis came, it was all about saving the rotten regime that had enabled imprudent risk-taking and gross missing pricing of sovereign debt throughout the European financial system. EU apparatchiks never cared a wit about the plight of the Greek people. Their desperate machinations were only for the purpose of appeasing the financial market speculators who would have otherwise caused debt service to soar throughout the EU, thereby generating an existential crisis that would have brought down the failing machinery of the euro and the EU’s superstate rulers in Brussels.
So five years of false history needs to be aired and purged. The baleful truth is that widows and children, among others, are starving in Athens today in order that financial speculators would not have a hissy fit and that the apparatchiks of the EU could hang on to their power, privileges and cushy sinecures.  
 Varoufakis himself recently made this crystal clear:
 Europe in its infinite wisdom decided to deal with this bankruptcy by loading the largest loan in human history on the weakest of shoulders, the Greek taxpayer. What we’ve been having ever since is a kind of fiscal waterboarding that has turned this nation into a debt colony.”
The real assault on Greece and the common people of every other European country stems from central bank corruption of the sovereign debt market; and from the associated crony capitalist regime of bank bailouts. By effectively eliminating credit risk and by artificially driving the yield on public debt to essentially zero, the European superstate has supplanted old fashioned price discovery, accountability and honesty in the entire multi-trillion market in sovereign European debt with the destructive “whatever it takes” writ of its financial apparatchiks.
Consequently, and as exemplified by today yields of 160 bps, 54 bps and 26 bps, respectively, on the Italian, French  and German 10-year bonds, the European government debt market has become a financial freak show. These insane prices have nothing to do with “deflation”; they are pure gifts to front running speculators, who, after five-years of bailouts and ZIRP, have every reason to believe that the craven fools running the European superstate will never permit a dime of losses.
Needless to say, exempting bankers and investors from the consequence of their own folly and greed is fatally inimical to democratic self-governance. As is now so evident in Europe’s mounting economic stupor and gathering political fractures, it inexorably leads to unaccountable, centralized rule of fiscal life and financial markets, alike; it is the reason why the Greek people have been stripped of their sovereignty and turned into debt slaves of the EU apparatchiks. 
So the status quo ante must be restored, and it is not hard to imagine how it would have played out. Had the actual parties to Greece’s prior spree of fiscal profligacy been allowed to step up to the plate and to shoulder the unpleasant consequences of their previous feckless actions, the outcome would have been a painful bankruptcy—but one which would have cleared the decks of the real culprits and paved the way for a constructive revival of the Greek economy.
First and foremost, the foolish European banks and bond speculators who ignored the self-evident risks of Greece’s runaway finances would have taken the deep haircuts needed to put Greece’s debt back on a sustainable basis. There would have been no new debt to bailout the culpable financial operators who lured Greece’s government into unsustainable borrowing at artificially cheap yields in the first place; and no fraudulent conveyance of losses from these financial institutions to the common folk of Greece. Rather than soaring to its present crushing total of $350 billion, Greece’s debt would have actually been rolled back sharply from the $230 billion level it was approaching in 2010.
Moreover, had the crisis been allowed to run its course to bankruptcy when it came to a head in 2010, the resulting massive losses to banks and speculators would have conveyed two essential messages— without which neither political democracy nor honest financial markets can survive.
The first message would have been to mind the financial condition, policies and politics of each and every sovereign issuer within the EU; there was never any mutualization of debt anywhere in the documents and treaties of the EU and no reason to believe that markets could simply command it when it became convenient.
The second, even more crucial message, would have been that there is an inherent, huge risk factor embedded in euro denominated sovereign debt because unless the German army is to occupy Europe, there is no basis, ultimately, for compelling any member country to abide by the fiscal limits of the treaty or even to stay in the EU.
Would that the punters in London and Zurich and the complacent bankers in Munich and Paris have suddenly found that they had been issued new bonds denominated in drachma at 20 cents on the dollar. The current crop of self-serving crony capitalist who run these institutions would have been forced to find a new line of work long ago.
And let us not mince words. Governments will always be tempted to issue way too much debt. The only way to restrain them is to allow the bankers and investors who buy their paper to face the risk of ruinous losses—both in their financial statements and their career prospects.
Let me tell you something else. Had Greece been allowed to go bust in 2010, then and there real “price discovery” would have commenced in the European sovereign debt markets. And there would have been a two-way therapy as a result. The bankers and investors who bought Greece’s junk would have been flushed, and Greece’s politicians would have faced their own day of reckoning.
In fact, in the wake of a bankruptcy, it would have been the Greek people and their government—- not the officious bureaucrats of the Troika—-who would have been obliged to formulate and impose the requisite measures of austerity. Needless to say, the calamity and embarrassment of a national bankruptcy five years ago would have caused the Greek electorate to throw-out the corrupt, incumbent politicians and the crony capitalist oligarchs that brought the nation to ruin in the first place.
And notwithstanding the tough choices that would have confronted a new post-bankruptcy government, the resulting period of austerity and fiscal self-discipline would have had a therapeutic purpose. That is, to enable the Greek state to function without new borrowings and to eventually restore its credit in the international capital markets. 
Had Greece been forced into bankruptcy and the drachma, it would have been required to endure a brutal regime of “austerity” as it cut its primary deficit to zero; and it would not have had the easy escape option to run the drachma printing presses red hot and monetize its fiscal debt. That would have caused a plunging exchange rate and massive flight of domestic capital and savings.
Stated differently, Greek democracy would have been forced to make tough choices, including deep cuts to pensions, curtailment of subsidies to domestic industries and interest groups, wholesale firings at its bloated public bureaucracies, and painful tax increases on millions of citizens. But the “memorandum” laying out this plan of austerity would not have been written in Brussels and delivered by officious bureaucrats speaking in French, German and English tongues.
Instead, the sacrifices and pain would have been hammered out in the halls of Greece’s parliament and its government ministries. Had the politicians and officials who run these institutions attempted to cheat, kick-the-can and otherwise indulge in budgetary self-delusion, they would have been quickly cut short for lack of cash.
Likewise, any attempt to make ends meet by monetizing the debt would have instantly imposed pain on the Greek citizenry in the form of a plummeting Drachma and prohibitive cost of imports. In short, the public’s ire would have been directed where it belongs—-at its own politicians in nearby Athens, not Frau Merkel and  the faceless bureaucrats who had been sent to Greece to do her bidding.
So if the task at hand is to turn the clock back to 2009, what is the math involved in repudiating the $175 billion fraudulent conveyance by the EU and how can the new Greek government get it done?
The first part is straight forward. Based on the widely circulated Bruegel numbers, Greece purportedly owes the IMF $35 billion. It should repudiate all of its IMF debt because never again should any Greek government go hat-in-hand to the IMF. The latter is a loathsome institution—-a gigantic fount of moral hazard and hand-maiden of the world’s crony capitalist bankers. During the last four decades it has done little except rescue the soured bets of bankers and bond managers and impose destructive shock therapies on fiscally impaired supplicants, thereby stripping these sovereign nations of the obligation to rectify their own excesses and formulate their own plans of austerity and recovery.
Indeed, the Greeks could do the world an immense favor by not only defaulting on the debts fraudulently conveyed by the IMF, but perhaps it could also threaten to arrest any IMF bureaucrat who crosses its border. Clueless mountebanks like Ms. Lagarde need to understand they are not doing gods work after all; and legislators in Washington, London and Tokyo who keep sending multi-hundred billion blank checks to the IMF need to explain to their constituents why their tax dollars are being squandered bailing out the bad bets of international bankers.
Likewise, if a 50% haircut was good enough for Germany in 1953, it ought to suffice for the settlement of Greece’s obligations to the EU institutions today. According to Bruegel’s estimates, the combined amount owed to the Eurozone countries and the ECB is about $230 billion, meaning that $115 billion could be sliced off that total.
Finally, the $25 billion balance of the $175 billion haircut needed to repudiate Greece “bailout debt” would have to come from the approximate $70 billion owed to private banks and bond investors outside of Greece. In practice that would amount to no hair cut at all from the current blown-out market value of these obligations. Indeed, the hedge fund speculators and other punters which scooped up this paper during the illusionary Draghi recovery of the past year would be more than lucky to recover 67 cents on the dollar.
So the issue is not the math—its how to get the job done. The answer is that it needs to be done by way of announcement, not negotiations. The debt involved here is not legitimate; it is a fraudulent conveyance foisted upon the Greek people by the bureaucracy and politicians of the European superstate.
In announcing that it is leaving the Euro, therefore, Greece only needs to enumerate how much it intends to pay on its EU/ECB outstandings and over what period of time. About a century ago even the vengeful French were willing to give an impoverished Germany 50 years to make it reparations. Today’s prosperous statesman in Berlin should be happy to receive the same.
So history is at an inflection point. Hopefully the disparate coalition of leftist politicians and anti-establishment rebels that the Greek people have turned to in sheer desperation will not be bamboozled by the present chorus of Keynesian apologists for the EU’s rogue regime of banker bailouts and printing press monetarism.
Greece does not need to borrow new money from any one, and by announcing that it will refuse the next installment of the bailout it has already embraced that cardinal principle. Moreover, after a 2-3 year debt service suspension needed to stabilize its economy and public finances, it can live with a modest primary budget surplus for years to come in order to devote perhaps 4% of GDP to servicing its $175 billion of legitimate external debt. Except this time the required fiscal surpluses would be thrashed out in the democratic forum where the very idea of rule by the people first arose.
Likewise, Greece can re-establish its own central bank, currency and international credit if it is willing to abide by a second cardinal rule. Namely, its reconstituted central bank must be constitutionally prohibited from monetizing the debt of the Greek state or receiving government subsidies after its initial capitalization to create a Drachma based monetary system.
Let its central bank own RMB, USD and gold. Under that central banking arrangement, domestic interest rates would be set by market forces. Reckless printing of Drachma to buy any of these global assets would be self-evidently futile—even to central bankers. And a financial system and currency which strictly shackled its central bankers would in no time become a haven for domestic savers and capital inflows, alike.
Finally, if Greece’s new leftist regime actually believes that it can restore economic growth and prosperity through public investment—a belief that does not remotely hold up under the evidence—- it need only adhere to a third cardinal rule. That is, it must find an efficient, equitable and politically sustainable way to raise the money through current taxation.
Greece has been borrowing its way to disaster long enough.

Russian PM bans machinery imports for municipal and state needs

As part of Russia’s anti-crisis plan for import substitution, the country is to stop importing foreign-made machinery to be used by the state and municipalities.
“I signed a special document, it restricts the admission of certain types of foreign-made machinery into federal and municipal auctions”, Medvedev announced during a meeting with deputy prime ministers Monday.
The ban “concerns primarily construction equipment and mining machinery, as well as utility equipment and other types of vehicles,” Russian Deputy Prime Minister Arkady Dvorkovich said.
Each type of banned machinery already has a “Russian- made version,” he said.
Machinery made in the countries of the Eurasian Economic Union (EEU) is an exception. "The machinery from EEU countries will be delivered just as Russian-made vehicles,” Dvorkovich added.
Last Tuesday, Russian Prime Minister Dmitry Medvedev signed a one-year anti-crisis plan costing at least $35 billion, aimed at stabilizing the slowing economy. Import substitution has become one of the key economic issues for Russia after the outbreak of the so-called “sanction war” with the West. Russian Finance Minister Anton Siluanov estimated the Russian economy was losing about $200 billion from a combination of sanctions and plummeting oil prices.
Western sanctions were a 'dead-end track,' but Russia has been forced to respond to the measures taken by the Western countries, Medvedev said.
On Thursday, the European Commission decided to extend sanctions against Russia through September 2015.
In August 2014, Medvedev signed a decree banning the import of beef, pork, poultry meat, fish, cheese, milk, vegetables and fruit from Australia, Canada, the EU, the US and Norway. The Russian PM added that Moscow still had a lot of trade partners abroad, which it had not placed on the retaliatory sanctions list.
Then in September, Russia considered import restrictions on Western cars and clothing in response to the sanctions against Moscow.

Monday, February 2, 2015

Europe Fractures: France "Prepared To Support Greece" In Debt Renegotiations

Despite Angela Merkel's insistence on numerous occasions this past week that there will be "no debt renegotiations," it appears a schism at the core of Europe is opening. As France24 reports, following a meeting between France's finance minister Michel Sapin and Greece's finance minister Yanis Varoufakis, the press conference had a considerably more amicable tone that Friday's Dijsselbloem dissing. "France is more than prepared to support Greece," Sapin said adding that Greece’s efforts to renegotiate were "legitimate." Sapin urged a "new contract between Greece and its partners."

France’s Socialist government offered support Sunday for Greece’s efforts to renegotiate debt for its huge bailout plan, amid renewed fears about Europe’s economic stability.

The backing was a victory for Greek Finance Minister Yanis Varoufakis, holding talks with European officials to push for new conditions on debt from creditors who rescued Greece’s economy to save the shared euro currency. Worries have mounted that Greece’s new far left government might not pay back its debts.

Varoufakis is also visiting London and Rome – and said Sunday that he would visit Berlin. The German government has been particularly angry at the new Greek government’s position and bluntly rejected suggestions that Greece should be forgiven part of its rescue loans.

Varoufakis insisted that Greece wants to pay the money back, but said he wants new terms and new negotiating partners, arguing that “it’s not worth” discussing with the so-called “troika” of creditors who set the strict terms for Greece’s rescue.

France’s Socialist leadership, whose president has campaigned against austerity, presented itself Sunday as a possible mediator between Greece and creditors.

French Finance Minister Michel Sapin insisted his country wouldn’t support canceling the debt, but offered support for a new timeframe or terms.

“France is more than prepared to support Greece,” Sapin said after meeting Varoufakis, saying Greece’s efforts to renegotiate were “legitimate.” Sapin urged a “new contract between Greece and its partners.”
*  *  *
Perhaps Merkel should remember her nation's own history?
Marina Prentoulis, a senior lecturer at the University of East Anglia and Syriza’s London spokesman, said that Europe’s austerity drive had left an entire generation in Greece with “no future”.

"We are not going to enforce the austerity programmes, what we call the memoranda, it created a huge humanitarian crisis, she said. People have been working all their lives and their pensions have been slashed to 40pc," she told the BBC's Andrew Marr Show.

"We have huge unemployment – 27pc. And 60pc for young people. This means that they have created a generation that has effectively no future. They have destroyed any employment rights. So this has to stop. This programme Syriza has pledged is not going to be enforced any more."

Angela Merkel, the German Chancellor, has ruled-out cancelling more of Greece's national debt, which has climbed to more than 175pc of gross domestic product (GDP). However, Ms Prentoulis said Germany should "remember it’s own history".

"In 1953 a big part of the German debt was written off and then the repayments were associated with growth. This is what Syriza is asking for Greece as well," she said.

http://www.zerohedge.com/news/2015-02-01/europe-fractures-france-prepared-support-greece-debt-renegotiations 

Wednesday, January 28, 2015

Greece Begins The Great Pivot Toward Russia

Ten days ago, before the smashing success of Greece's anti-austerity party, Syriza, we noted that Russia gave Greece a modest proposal: turn your back on Europe, whom you despise so much anyway, and we will assist your farmers by lifting the food import ban.
And, sure enough, Greece's new premier Tsipras did hint with his initial actions that Greece may indeed pivot quite aggressively away from Europe and toward Russia in general and the Eurasian Economic Union in particular (as a tangent recall "Russia's "Startling" Proposal To Europe: Dump The US, Join The Eurasian Economic Union").
Today we got further evidence that Tsipras will substantially realign his country's national interest away from the west and toward... the east.
First, as Reuters reported, today the new premier halted the "blue light special" liquidation of Greece to those highest bidders who have the closest access to various printing presses and stopped the privatization of Greece's biggest port on Tuesday, "signaling he aims to stick to election pledges despite warning shots from the euro zone and financial markets."
One of the first decisions announced by the new government was stopping the planned sale of a 67 percent stake in the Piraeus Port Authority, agreed under its international bailout deal for which China's Cosco Group and four other suitors had been shortlisted.

"The Cosco deal will be reviewed to the benefit of the Greek people," Thodoris Dritsas, the deputy minister in charge of the shipping portfolio, told Reuters.
Europe, for one, will be most displeased that Greece has decided to put its people first in the chain of priority over offshore bidders of Greek assets. Most displeased, especially since the liquidation sale of Greece is part of the Greek bailout agreement: an agreement which as the Troika has repeatedly stated, is not up for renegotiation.
Syriza had announced before the election it would halt the sale of state assets, a plank of the 240 billion-euro bailout agreement. Stakes in the port of Thessaloniki, the country's second biggest, along with railway operator Trainose and rolling stock operator ROSCO are also slated to be sold.
And it wasn't just this open act of defiance that marked the new government's anti-European agenda:
In a separate step, the deputy minister in charge of administrative reform, George Katrougkalos said the government would reverse some layoffs of public sector workers, rolling back another key bailout measure. "It will be one of the first pieces of legislation that I will bring in as a minister," he told Mega TV.
The Germans were not happy: A German central banker warned of dire problems should the new government call the country's aid program into question, jeopardizing funding for the banks. "That would have fatal consequences for Greece’s financial system. Greek banks would then lose their access to central bank money," Bundesbank board member Joachim Nagel told Handelsblatt newspaper.
Well, maybe.... Unless of course Greece finds a new, alternative source of funding, one that has nothing to do with the establishmentarian IMF, whose "bailouts" are merely a smokescreen to implement pro-western policies and to allow the rapid liquidation of any "bailed out" society.
An alternative such as the BRIC Bank for example. Recall that the "BRICS Announce $100 Billion Reserve To Bypass Fed, Developed World Central Banks."
And yes, the BRIC are going through their own share of pain right now as a result of plunging crude prices, but remember: crude is only low as long as the US shale sector is still vibrant. Once this marginal producer of crude with a $80 cost-breakeven is out of the picture, watch as Saudi Arabia tightens the spigots and Crude surges to $100, $150 or more. The question is whether Saudi FX reserves can outlast the Fed's ZIRP, which is the only reason - think idiots junk bond investors desperate for any ounce of yield - why the bulk of unprofitable and cash flow-bleeding US shale can still operate with WTI at $45.
Which naturally means that now Russia (and China) are set to become critical allies for Greece, which would immediately explain the logical pivot toward Moscow.
But wait, there's more.
As Bloomberg further reports, "Foreign Minister Nikos Kotzias is due in Brussels on Thursday to discuss possible additional sanctions on Russia over the conflict in Ukraine. Before the cabinet even meets for the first time tomorrow, the Greek government said that it disagreed with an EU statement in which President Donald Tusk raised the prospect of “further restrictive measures” on Russia."
The punchline:
In recent months, Kotzias wrote on Twitter that sanctions against Russia weren’t in Greece’s interests. He said in a blog that a new foreign policy for Greece should be focused on stopping the ongoing transformation of the EU “into an idiosyncratic empire, under the rule of Germany.”
And when it comes to the natural adversary of any German imperial ambitions in recent history, Europe has been able to produce only one answer...

Another Bailout: FXCM To Forgive 90% Of Its Mostly Foreign "Negative Balance" Customers

Two weeks after FXCM was on death's door, and only a last minute vulture investment by Jefferies prevented the company from filing, FXCM has decided that it can't afford to blow up the bulk of its clients who traded the EURCHF on the wrong side, and as the company reported moments ago, will forgive their negative balances. In other words, another bailout for HFTs, and the rich and those habitually addicted to gambling in rigged markets, who just happen to be the lifeblood of companies like FXCM.
From the press release:
FXCM to Forgive Majority of Clients Who Incurred Negative Balances

FXCM Inc.announced today its decision to forgive approximately 90% of its clients who incurred negative balances in certain jurisdictions, on January 15, 2014 as a result of the Swiss National Bank announcement on that date. FXCM will notify the applicable clients and adjust applicable client account statements in the next 24-48 hours.

"FXCM worked diligently to reach this decision and we are extremely appreciative of our clients for their patience and loyalty as we worked through this," said Drew Niv, CEO of FXCM.

The SNB announcement, extreme price movements and the resulting lack of liquidity were exceptional and unprecedented events causing many market participants to incur trading losses. These events were unforeseen and beyond the control of FXCM.

FXCM will also notify certain clients (such as institutional, high net worth, and experienced traders who generally maintain higher account balances) requesting payment of negative balances, pursuant to the terms of the FXCM master trading agreements.  This group represents approximately 10% of clients who incurred negative balances  which comprises over 60% of the total debit balances owed.
Because without whale clients, no exchange can continue to skim off the bid/ask margin while suckering in more "overnight wannabe millionaires" with 200x leverage.
So who are the generous beneficiaries of this Jefferies-funded bailout? For the answer we go to the WSJ:
Retail foreign-exchange broker FXCM Inc. was nearly felled by outsize bets made by foreign customers who aren’t subject to U.S. regulations, according to people familiar with regulators’ review of the firm.

While some U.S. clients lost money when the Swiss National Bank scrapped a cap on the country’s currency, the bulk of the losses were borne by clients at FXCM’s affiliates in London, Singapore and other locations abroad, the regulators said. Those affiliates weren’t subject to leverage caps imposed by U.S. regulators, allowing overseas clients to make bigger bets—and take bigger losses.

As a result, FXCM said its customers owed the firm about $225 million, potentially putting the company in violation of capital requirements and forcing it to take a $300 million rescue from investment firm Leucadia National Corp.

The fallout illustrates both how a firm’s losses abroad can find their way to U.S. shores and that even relatively strict U.S. regulation can’t prevent losses in less-regulated jurisdictions. While regulators don’t believe the firm’s near-collapse posed any broader risks to the financial system, the incident is prompting them to consider whether their capital and leverage requirements are adequate for firms like FXCM, the people familiar with the review said.

In the U.S., the Commodity Futures Trading Commission and the National Futures Association, a self-regulator, currently limit leverage on transactions for retail, or individual, currency investors at 50 to 1. That means an investor can borrow $50 for every dollar put in. This is because currency moves are typically small. Many overseas jurisdictions have much looser limits, particularly in Europe.
It may not be Mrs. Watanabe exactly: meet Monsier Trepreau:
Maxime Trepreau, a 33-year-old engineer from Houilles, France, placed a bet on the euro to rise against the Swiss franc several months ago, after seeing the position recommended by an analyst on Daily FX, an FXCM-owned website. On the morning of Jan. 15, Mr. Trepreau saw the value of his account rapidly declining, despite an automated order he had to exit from the position and keep losses to a minimum if the trade went the wrong way. Currency traders say liquidity evaporated as the euro made a sudden fall, which would make it difficult to execute preset orders.

By the time his order was executed, Mr. Trepreau’s loss of €50,000 (more than $56,000 at today’s rate) had eaten up all of the funds in his FXCM account and left him with a negative balance of €2,000.

Mr. Trepreau says FXCM hasn’t told him whether he is on the hook for that amount. Mr. Trepreau believes he shouldn’t be.
And just like Apple, the bulk of marginal growth when it comes to FX gambling is now in Asia:
In 2014, 41.5% of FXCM’s business by volume came from Asia; followed by 35.9% from Europe, the Middle East and Africa; 13% from the U.S.; and 9.6% from the rest of the world, according to its website.
In shart, thank you Dick Handler: Mrs. Watanabe, and Mr. Trepreau, are most grateful.

Tuesday, January 27, 2015

Medvedev Warns Of "Unlimited Reaction" If Russia Cut From SWIFT

While nations around the world continue to de-dollarize, Russia signed into law its anti-crisis plan today (though details will not be released until tomorrow). Prime Minister Dmitry Medvedev, however, was quite vociferous in some of his threats, warning The West that the "Russian response - economically and otherwise - will know no limits" if Russia is cut off from the SWIFT payments system. Additionally, as Royce, the chairman of the House foreign affairs committee, explains Iran nuclear talks "appear to be stalemated," just days after Iran completes its de-dollarization and news today, that Russia and Iran plan to create a mutual account for bilateral payments in national currencies.

Western countries’ threats to restrict Russia’s operations through the SWIFT international bank transaction system will prompt Russia’s counter-response without limits, Prime Minister Dmitry Medvedev said on Tuesday.

"We’ll watch developments and if such decisions are made, I want to note that our economic reaction and generally any other reaction will be without limits," he said.

In late August 2014, media reports said the UK had proposed banning Russia from the SWIFT network as part of an upcoming new round of sanctions against Moscow over its stance on developments in neighboring Ukraine. However, this proposal was not supported by the EU countries at the time.

After recent shelling of the Ukrainian city of Mariupol some western countries again started calling to disconnect Russia from SWIFT.

SWIFT transaction system

The Society for Worldwide Interbank Financial Telecommunications (SWIFT) transmits 1.8 billion transactions a year, remitting payment orders worth $6 trillion a day. The system comprises over 10,000 financial organizations from 210 countries.

Under the SWIFT charter, groups of members and users are set up in each country covered by the system. In Russia, these groups are united in the RosSWIFT association.
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Russia intends to have its own international inter-bank system up and running by May 2015. The Central of Russia says it needs to speed up preparations for its version of SWIFT in case of possible ”challenges” from the West.

"Given the challenges, Bank of Russia is creating its own system for transmitting financial messaging... It’s time to hurry up, so in the next few months we will have certain work done. The entire project for transmitting financial messages will be completed in May 2015," said Ramilya Kanafina, deputy head of the national payment system department at the Central Bank of Russia (CBR).
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As Reuters reports, Russia's isolation appears to be shrinking...
Russia and Iran plan to create a mutual account for bilateral payments in national currencies, RIA news agency quoted Mehdi Sanaei, Iran's ambassador to Moscow, as saying.

"Both sides plan to create a mutual bank or a mutual account to make payments in rials and roubles possible," the ambassador said.
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Quickly followed by:
  • *SHELBY SAYS MORE PRESSURE ON IRAN NEEDED FOR `VIABLE' DEAL
  • *ROYCE SAYS IRAN NUCLEAR TALKS `APPEAR TO BE STALEMATED'
  • *CHAIRMAN ROYCE OF HOUSE FOREIGN AFFAIRS HOLD IRAN HEARING
  • *OBAMA, SAUDI KING DISCUSSED IRAN NUCLEAR NEGOTIATIONS: OFFICIAL