Euro Area


Greek Government Seemingly Blinks

Alexis Tsipras has tried his best to sell the outcome of Greece’s negotiations with the EU to his voters over the weekend. As far as we can tell, the Greek government hasn’t achieved even a single one of its aims so far. The bailout was extended by four months, but in spite of a few cosmetic changes to the wording accompanying it (e.g. the “troika” has been renamed “the institutions”), it is still precisely the same bailout agreement as before.



Yanis Varoufakis and Alexis Tsipras. What’s the plan?

Photo credit: Alkis Konstantinidis / Reuters


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Game of Chicken Continues, EU Ratchets Up Pressure on Greece

After the ECB has made Greek debt no longer eligible for repos (note that this mainly concerns government bonds however, bank bonds that have been “guaranteed” by the government will however no longer be eligible after February 28 2015 either – these amount to a quite large € 25 billion), fears of an intensifying bank run in Greece are growing. At the end of December, Greek banks owed about € 56 billion to the euro system. This is estimated to have jumped to about € 70 billion since then.

These debts to the system have grown concurrently with a sharp decline in deposit liabilities since November last year, when it dawned on people that there might be an election. Unfortunately more up-to-date data aren’t available as of yet, but we will try to post them as soon as the Bank of Greece makes them available. However, there exist estimates regarding the extent of the decline in deposits since the end of December as well – very likely an additional € 15 billion has fled from the Greek banking system since then.



Photo credit: Pressmaster via Shutterstock


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Reluctant Tourist

We stand with the Communists!

That’s right – shoulder-to-shoulder, singing “The Internationale” with Syriza, the ruling party of Greece, after an election campaign marked by an unusual degree of honesty.

At least, one party was telling the truth when it sent an “open letter” to the voters of another nation! More on that in a minute.

First, let’s follow up on our travel memoirs. We are a reluctant tourist; wherever we go, nothing quite measures up to Baltimore. Once you have come to know Charm City, well, there’s nothing else like it.

Which is too bad for a rogue economist, condemned to wander the earth in search of fleeting insights. He sees the most bizarre, appalling, and often fetching, things… and they all remind him of home.




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Adios, Toxic Trash Debt from the Hellenic Province

The ECB continues to play the role of “bad cop” in the current back and forth between the Syriza-led government of Greece and the EU. The latest salvo entailed the ECB suddenly rescinding the waiver that made junk-rated Greek debt eligible for refinancing operations with the central bank. Here is the wording of its statement:


Eligibility of Greek bonds used as collateral in euro system monetary policy operations

The Governing Council of the European Central Bank (ECB) today decided to lift the waiver affecting marketable debt instruments issued or fully guaranteed by the Hellenic Republic. The waiver allowed these instruments to be used in euro system monetary policy operations despite the fact that they did not fulfill minimum credit rating requirements. The Governing Council decision is based on the fact that it is currently not possible to assume a successful conclusion of the program review and is in line with existing euro system rules.

This decision does not bear consequences for the counterparty status of Greek financial institutions in monetary policy operations. Liquidity needs of euro system counterparties, for counterparties that do not have sufficient alternative collateral, can be satisfied by the relevant national central bank, by means of emergency liquidity assistance (ELA) within the existing euro system rules.

The instruments in question will cease to be eligible as collateral as of the maturity of the current main refinancing operation (11 February 2015).


(emphasis added)



Photo credit: Jonas de Ruytter

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Varoufakis’ Tour of Europe

Greece’s new finance minister Yanis Varoufakis has toured Europe, trying to drum up support for – actually, we’re not quite sure what for exactly, as the precise nature of the Greek government’s demands is currently in flux (this is a parallel to Syriza’s ever-changing pre-election statements). Essentially, he seems to be gauging what they can get away with.

Not surprisingly, France’s political leadership has announced its support for a “debt deal” in principle (whatever that means), as the spendthrift French government is so to speak an ideological partner-in-crime of Syriza. However, the French government stopped short of supporting a partial write-down of Greece’s debt (Michel Sapin: “No we will not annul, we can discuss, we can delay, we can reduce its weight, but not annul”). Similar noises have issued from Berlin and Madrid.


EUROPA_Ancient Greece


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Greece Gains Vastly in Entertainment Value

As we always point out in these pages, the best one can as a rule hope for in a politician is that he will provide us with entertainment. Syriza chief and new Greek prime minister Alexis Tsipras and his ministers have certainly exhibited far greater entertainment value so far than their rather dull predecessors.

Within hours of taking up his post, Alexis Tsipras issued a number of zingers in the general direction of Brussels. First it was widely reported that he threatened not to support new EU sanctions against Russia, the imposition of which requires unanimity. It was then said that the Greek government quickly withdrew its opposition after consulting with the rest of the EU. However, the real story seems to be that Tsipras was simply miffed that the EU claimed that there was unanimous support for the sanctions package without deigning to even ask the new Greek government whether it agreed.


Yanis VaroufakisYanis Varoufakis, Greece’s new minister of finance.

Photo credit: Kostas Tsironis / Reuters


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Tempests Everywhere


And then democracy comes into being after the poor have conquered their opponents, slaughtering some and banishing some, while to the remainder they give an equal share of freedom and power.

– Socrates, Plato’s The Republic


A snowstorm battered the East Coast of the US today. Politics rocked southern Europe.

Sitting here on the edge of the beach, overlooking the Pacific Ocean, a gentle breeze stirring the trees… birds singing… surfers carrying their boards across the sand…

… it’s hard to imagine the tempest in North America, let alone the swirling clouds over the Parthenon. The radical left-wing Syriza coalition party won in Greece.

Once again, Greece is a victim of democracy.


papoulias and tsiprasGreece’s elderly president Karolos Papoulias warily eyes Alexis Tsipras as he is about to be sworn in as the country’s new prime minister.

Photo credit: Aris Messinis / AFP


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Greek Election – Decisive Victory by SYRIZA

With more than 95% of the votes in Greece’s parliamentary election counted as of the time of writing, Greece’s far-left Syriza led by Alexis Tsipras was already certain to have won a decisive victory.


Greek election resultGreek election results after more than 95% of the votes had been counted – click to enlarge.


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Greek Complications

As many other market observers have pointed out recently, 2015 is going to be an important year for the euro area. On the one hand, there are a number of elections the outcomes of which could seriously jeopardize the monetary union and the currently agreed on policy prescriptions. The temporally closest is the election in Greece, which is likely to bring Syriza to power. As Mish has pointed out recently, bank runs have already started again in Greece. This is not too surprising, as the election creates a lot of uncertainty for depositors and savers. No-one with money in the bank in Greece wants to see it transformed into drachma overnight. Given that the ECB has in the meantime openly threatened to cut off funding to the Greek banking system should the new government stray from the agreements with the troika, this danger is very real. Later this year, the election in Spain is also liable to produce some fireworks (see “A Political Earthquake is Coming in Spain” for some background information), as another crypto-Marxist party, Podemos, has become a contender for power in Spain. It should be pointed out that the economic plans of these parties are purest pie-in-the-sky stuff, which mainly depend on spending money these governments simply don’t have. This is not to say that we would disagree with every point in Syriza’s 40 point program, which contains laudable initiatives like acknowledging Greece’s insolvency and wiping the slate clean, cutting military spending, decriminalizing drugs, and negotiating a stable accord with Turkey (Greece and Turkey are age old enemies). However, its economic program includes vast tax increases (emulating inter alia Mr. Hollande’s 75% “super tax”, which France has just dropped because of the economic damage it has inflicted), nationalization of various industries, re-regulation of labor markets back to their sclerotic old self, and numerous other leftist shibboleths which have predictably failed wherever they have been tried.



The senate of the European Court of Justice.

Photo credit: European Court of Justice

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The Greek Conundrum

As you can see above, we have created a new term describing deliberations regarding the possibility of a Greek default combined with an exit from the euro area. The reason why the time for the term “Grexitology” has come is that opinions on Greece’s future in the euro zone are plentiful and are covering the entire imaginable range, from “it would actually be a good thing” (getting rid of the weakest link in the euro chain) to “it won’t happen” to “it doesn’t matter” to “it will bring about the end of the world”.

In the latter category we find the always dependable Ambrose Evans-Pritchard, pronouncing imminent doom. He thinks that everybody is too complacent about the “contagion danger” in light of financial markets so far confining their negative reaction to Greek bonds and stocks instead of meting out more broad-based punishment (e.g. Spanish and Italian government bond yields have so far barely budged from recently attained all time lows). He believes that unless Spain and Italy are getting into trouble as well, the German government just doesn’t care what happens with Greece.


Alexis TsiprasAlexis Tsipras: with these here hands I will tear up the bailout agreement…or not. What day of the week is it?

Photo credit: Remy De La Mauviniere / AP


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The Good, the Bad and the Plain Crazy

The EU Commissariat has just made an announcement that is both good and bad. Let us start with the good: According to European press reports, Chief Commissar Barroso left the commission with an inheritance of 452 legislative initiatives, including the “harmonization of standards of maternity protection”, “uniform energy taxation and environmental protection legislation” and “forcing all nations to implement waste recycling” (if you want to know why waste recycling, which superficially sounds like a great idea, is yet another complete etatiste charade, read this article in which Per Bylund deconstructs the recycling myth using socialist paradise Sweden as an example).

Anyway, the new commissariat under JC Juncker has decided to simply strike 83 of Barroso’s initiatives legacy completely, put a large part of it on hold, and instead concentrate only on a handful – 23 to start with. Also, among the things to be tackled is an endeavor to actually cut red tape (we will believe it when we see it). According to the commissariats own words:


“When laws are no longer fit for purpose, or impose too much burden, they will be reviewed and amended to make EU law lighter, simpler and less costly.”


So much for the “good”.

However, it is very unfortunate that many of the remaining initiatives they have decided to concentrate on (the bad) mainly consist of bureaucratic nonsense of the finest. Among the top initiatives we find for example: The “€315 billion investment offensive”, an “ambitious digital single market package” (under the leadership of the economically and technologically illiterate digital commissar Mr. Öttinger, whom we have profiled before), and “fair taxation” (the term “fair” in conjunction with the term taxation always means only one thing: higher taxes).


We want to once again focus on the bizarre “investment initiative” on this occasion. This project is one we would term both “bad” and “plain crazy”, although the political cronies who stand to be enriched by it would of course disagree.

Passenger stairs are seen in front of the airport in Lodz

The “ghost airport” at Lodz

Photo credit: Reuters

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Weidmann the Strict

BuBa chief Jens Weidmann is complaining about the EU Commission’s decision to eschew confrontation with France over its repeated inability to deliver on its debt and deficit targets, and rightly so.

Some people may argue that the French government’s recent willingness to implement some long-overdue, if halfhearted reforms, should be taken into account as a sign of goodwill. Perhaps, but it was precisely the “original Maastricht sin” of 2002-2003, when neither France nor Germany were taken to task for violating the treaty with their deficit overshoots that created the preconditions that later made it seem normal for many others to violate these limits as well (admittedly, this has to be brought into context with the artificial boom of 2002-2007 and the subsequent bust).

Nevertheless, the fiscal compact strikes as one of the more sensible EU regulations (although it is obviously difficult to enforce it against a big member nation). Not only because the euro’s survival essentially depends on it, but also because keeping government spending under control is good for the economy at large in any event.

If we have a gripe in this context, it is mainly that European governments are often inclined to raise taxes rather than cutting their spending. Both France and Italy currently stand as monuments to the folly of this approach.


weidmannJens Weidmann shortly after learning that France’s government will get away with a slap on the wrist.

Photo credit: Eric Piermont / AFP 


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Juncker Backtracks on EU’s South Stream Ban

How do you get €300 billion in (probably largely useless) “infrastructure investment” in Europe? Banning a $40 billion project from going forward is probably not going to help, not to mention that this one would actually have been useful. After Gazprom announced last week that it has had enough and is ditching the South Stream pipeline project (see “South Stream Dies” for details) after having invested $5 billion and run into countless politically motivated obstacles, EU commissariat president Juncker engaged in a back-tracking exercise, garnished with some nonsense about “Russia holding Bulgaria to ransom”. Very likely he got an earful from Bulgarian prime minister Boiko Borisov about the EU’s sabotage of the project:


“European Commission President Jean-Claude Juncker has insisted the $40 billion South Stream natural gas pipeline can still go ahead and accused Russia of holding EU-member Bulgaria to ransom when it said it had abandoned the project.

Speaking after talks with Bulgarian Prime Minister Boiko Borisov, whose country South Stream would traverse making it a major beneficiary, Juncker rebutted Russia’s statement that EU competition rules had killed it. He told reporters issues relating to the pipeline were not insurmountable and he was working with Bulgaria to address them.

Russia said on Monday it had abandoned the pipeline, which would have bypassed Ukraine, Gazprom’s traditional transit route for Russian gas, citing EU competition requirements for a pipeline’s ownership to be divorced from its cargo. It said it was working on an alternative route via Turkey.

Juncker accused Moscow of blackmailing Bulgaria, which retains strong political and economic ties with Moscow and is almost entirely dependent on Russia for its gas. “I am not accepting the simple easy idea that Bulgaria can be blackmailed as far as these energy relations are concerned,” Juncker said.

“We’ll take … all the necessary steps to make sure that our relations with Russia will be improved, but it doesn’t depend only on the willingness of the EU, of the European Commission. To dance a tango … you need two dancers.”

Borisov also said South Stream could be built and agreed it had to comply with EU rules, including legislation known as the third energy package, which limits how much of a pipeline a company can own if it also controls its contents. Further efforts to bring the project in line will be made on Tuesday, when EU energy ministers meet for regular talks. “I hope that all these technical details will be solved at this meeting including the third energy package,” Borisov said. He added he had not received any official notice from Russia that South Stream was not going ahead.

EU sources, speaking on condition of anonymity, said Russia’s calculation could have been that its announcement of South Stream’s demise would place the Commission under pressure from some member states to soften its regulatory stance. At the same time, Russia has a struggle [sic, ed.] to find the cash for South Stream, given a falling oil price and economic sanctions.”


(emphasis added)

A few remarks to the above: yes, the Bulgarians are understandably up in arms, but had it been up to them, the construction activities would never have been interrupted in the first place. As things stand, the previous Bulgarian government was badgered by the EU and visited by John McCain, whose primary mission was apparently to stop the pipeline from being built. The government announced that all construction on the pipeline would be stopped two hours after McCain left.


Boiko and JCBoiko Borisovich, here pictured shortly before jumping down JC Juncker’s throat. We would recommend not angering him too much: he’s a former bodyguard with a black belt in karate. His nickname is “Batman” (no kidding!).

Photo by BGNES


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Sometimes It Doesn’t Pay to Catch a Falling Knife …

We like to think that a contrarian investment approach works best in the long term. Contrarian does not necessarily mean that one simply tries to fight every trend. It is more about attempting to recognize when a trend has gone too far. In practice this is often more difficult than in theory. The theory is simple enough: buy low, sell high. However, it is nigh impossible to recognize turning points with precision. So a contrarian style often forces one to be patient, and to accept that one will frequently both buy and sell too early.

One way of dealing with this problem is to spread one’s purchases and sales out over time. We did this with Japan, to name an example. In “Reconsidering Japan”, which turned out to be a well-timed post, we made the case for Japanese stocks (warning: we have our share of decidedly less well-timed posts). We didn’t know at the time that a bull market would be set into motion by what we ultimately consider a catastrophic economic policy, we only knew that the market was cheap. Our own approach was to buy in small sizes over a long time period. It took a lot of patience, as the market simply sat and sat there – the rallies never amounted to much. We felt though that the market represented a contrarian opportunity. We have occasionally mentioned similar opportunities in the past, such as e.g. Greece and even China. As we have pointed out a few times, economic fundamentals and stock market performance are often two different cups of tea. Usually we tend to be “early”, but this doesn’t matter if an idea ultimately pans out (gold investors take heart).

There is however one market that has defied contrarians to such an extent that one wonders what the hell happened. Shortly after the bail-out, when we first wrote about the enormous decline in the Cyprus General Index, we did so because at the time it represented the greatest stock market crash in history by far (see: “The Greatest Collapse in History” for details). We also noted that Cyprus was in a very bad position, referring to it as “Iceland without the fish” and a “disaster zone” (which it was/is). The 98% decline in its stock market at the time might have led one to suspect that the place had been hit by an asteroid. Instead it had been hit by the EU, which turned out to be almost as bad, at least financially. We later posted a brief update on the Cypriot disaster area and noted that the market had apparently simply perished (see: “Cyprus – A Stock Market Dies”).

Believe it or not, Cyprus as such still seems to be standing. Here is a recent photograph of the Limassol sea front in Southern Cyprus:


Limassol seaside

Limassol – nope, no signs of an asteroid strike or a nuclear explosion visible.

Photo credit: P. Matanski


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If You Can’t Beat Them, Outlaw Them …

We have previously reported on the French obsession with stifling competition to the vast detriment of the consumer, so as to protect established businesses with all sorts of legal restrictions. A prime example of this nonsense is that the French have made free shipping by Amazon illegal in France (as discussed by Mish here). Mercantilism has never died in France, and today it is imposed under the guise of the so-called “cultural exception”, which ostensibly aims to “protect French culture” (see “France Threatens Trade Talks Over Cultural Exception” for details on this). There is much about French culture that is indeed admirable and admired the world over – and it obviously doesn’t require bureaucratic “protection”. That is a turn-off at best.

So we are not surprised to learn that the French government is in ever greater hysterics over the success of US based internet companies. “There ought to be a law”, and very likely there will be a law – French consumers and their preferences be damned. A recent article at Yahoo reports on “One country’s desperate battle to erase Google, Netflix and Uber from existence”:


“The French don’t play. Ever since Minitel bit dust, the continental power has been hopping mad about American domination of Internet services. And over the past weeks, attacks on U.S. giants have escalated from Paris to Lille.

Netflix is right now in the middle of an ambitious European expansion drive that started in Scandinavia and is fanning out south. Sure enough, France’s Association for the Protection of Consumers and Users has now sued Netflix for “malicious and illegal clauses.” These include changing the terms of contract without informing consumers, not offering information of guaranteed minimum quality and writing contract clauses in English.

No doubt this is only the opening salvo against Netflix in France, which guards its cultural heritage jealously. The U.S. streaming service tried to preempt Gallic criticism by financing a political drama series called Marseilles, but this appears to have been ineffective.

Uber’s French launch has been, if anything, more controversial than the Netflix debut. Infuriated taxi drivers in Lille have attacked a student for trying to enter an Uber car, first attempting to block her from opening the car door, then allegedly throwing a bottle at her head. The Uber POP service is about 20% cheaper than French taxis.

The French legal attacks on Google are too numerous to list here but the latest one actually has an entirely novel twist. France is now threatening Google with a hefty, €1,000 penalty for every defamatory link the company fails to remove from its global network of Google subsidiaries.

Google agreed earlier this year in Europe to remove links to articles that may be considered “outdated and inflammatory” — in other words, Europeans can demand removal of old search results that they consider embarrassing. But the new penalty scheme essentially holds the French subsidiary of Google responsible for the actions of its sister and parent entities. This in turn means that the French are attempting to make their legislative decisions global.

What to make of all these recent moves against some of America’s most successful corporations? They seem to indicate that France has no intention of trying to emulate the American model and foster growth of its own IT industry — instead, the country seems to be sliding towards perpetual guerrilla war against foreign tech powers. It is hard to overemphasize just how futile this bitter battle against the future looks to foreign observers.”


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THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future