Just to make things interesting, overnight Russia told a beleaguered Greece, and specifically its hurting farmers, that it "may lift its ban on food imports from Greece in the event it quits the European Union" according to Russian Minister of Agriculture Nikolai Fyodorov who spoke in Berlin on Friday. “If Greece has to leave the European Union, we will build our own relations with it, the food ban will not be applicable to it,” Fyodorov said as reported by Tass. In other words, Russia has casually thrown out feelers to Greece (and any other peripheral European country) and given it the option of joining the greater Russian sphere of influence (because the USSR 2.0 and satellites is still not trademarked), should it decide that 5 years after the first Greek "bailout" things for the country caught in an endless depression are as good as they will get with a bunch of Goldman bankers in charge.
By ending its three year currency peg to the weakening euro Switzerland has become the first major economy to surrender in the international currency war, and in so doing has given a long-delayed victory to the Swiss people. Contrary to the indignant reaction by the media and financial establishment, the decision is not a disaster for Switzerland, but may be looked at in the future as the first significant counter-attack against our current global system of monetary insanity.
Success, we’re constantly told, breeds success. And success breeds stability. The way to avoid failure is to copy successful people and strategies. The way to continue succeeding is to do more of what has been successful. This line of thinking is so intuitively compelling that we wonder what other basis for success can there be other than 'success'? As counter-intuitive as it may sound, success rather reliably leads to failure and destabilization. Instead, it’s the close study of failure and the role of luck that leads to success. In the macro-economic arena, we think it highly likely that the monetary and fiscal policies of the past six years that are conventionally viewed as successful will lead to spectacular political and financial failures in 2015 and 2016. How can success breed failure? It turns out there are a number of dynamics at work.
Following the adoption of its new military doctrine signed by President Vladimir Putin in December which identifies NATO expansion as an external risk, it is perhaps hardly surprising that, as Reuters reports, Russia's top general, Valery Garesimov stated that the "Defence Ministry will focus its efforts on increasing the combat capabilities of its units and increasing combat strength.. with special attention will be given to the groups in Crimea." Amid renewed heavy shelling in Donetsk, NATO's top military commander noted they will be stepping up exercises in the Baltic Sea region as Russian Deputy Foreign Minister Grigory Karasin warns, "the situation in eastern Ukraine is deteriorating."
In Germany, citizens are increasingly worried, with 57% of non-Muslims seeing Islam as a threat; and these fears prompted, as Bloomberg reports, about 25,000 people to turn out for an anti-Islam rally last night in the eastern city of Dresden. Protesters demanded tighter immigration laws, measures to fight 'religious preachers of hatred' and a zero-tolerance policy for immigrants who commit crimes. Angela Merkel has urged tolerance after the rally, warning that some of the organizers have "hatred in their hearts," but it appears the slippery clope has begun, summed up by one 73-year-old German, "I want lots of money for a program to pay Muslims to go home."
Just 13 short months ago - two months before then President Yanukovich was ousted - Russia lent Ukraine $3 billion (by buying their Eurobonds). As Reuters reports, the terms of that loan included a condition that Ukraine's total state debt should not exceed 60% of its GDP. As of last month, based on Moody's estimates, Ukraine has violated that condition with a debt-to-GDP of 72% (and will likely rise to 85% of GDP in 2015).. and so, according to Russian finance minister Anton Siluanov, "Russia has the right to demand early return of this loan." With European aid 'contingent on major reforms' and possibly taking up to 1 year, this leaves the good old IMF (i.e. the US and European taxpayer) to bridge Ukraine's 'gap' and ironically bailout Russia.
Two months ago we reported that former Soviet leader Mikhail Gorbachev has warned that tensions between Russia and the West over the Ukraine crisis have put the world "on the brink of a new Cold War." That warning has now escalated as the 1990 Nobel Peace Prize winner told Der Spiegel news magazine, according to excerpts released on Friday, that tensions between Russia and European powers over the Ukraine crisis could result in a major conflict or even nuclear war, adding that "a war of this kind would unavoidably lead to a nuclear war."
...over time, grand coalition governments may only serve to ossify the re-orientation of political allegiances along the mainstream vs. populist dimension. If economic malaise persists to the next election, support for populist parties is likely to build, as scepticism about the adjustments required to sustain Euro area membership rises. The Greek experience points in this direction. Were this experience to extend to larger and more systemically relevant countries (such as Italy or Germany), the implications for markets would be profound.
Mainstream Media in the US seem to emphasize the positive aspects of the drop in prices. If our only problem were high oil prices, then low oil prices would seem to be a solution. Unfortunately, the problem we are encountering now is extremely low prices. If prices continue at this low level, or go even lower, we are in deep trouble with respect to future oil extraction. The situation is much more worrisome than most people would expect. Even if there are some temporary good effects, they will be more than offset by bad effects, some of which could be very bad indeed. We may be reaching limits of a finite world.
For the first time ever, Italy's unemployment rate is more than twice that of its European Union (one region, one monetary policy) neighbor Germany. As Germany's jobless rate fell for the 3rd month in a row to 6.5% (the lowest level in records going back more than two decades), Italian unemployment unexpectedly rose to a record high at 13.4% (well above the euro-region rate of 11.5%). Of course, while these two nations 'economic' state diverges by the most on record, bond yields are at record lows in both - leaving us (and everyone else) questioning, just what it is that ECB QE will do to help Europe's economies?
It appears Germany is indeed very concerned about a Greek bank run and its concomitant contagion possibilities across the European Union's banking system...
*GERMANY OPEN TO GREEK DEBT TALKS AFTER ELECTION, LAWMAKERS SAY
Although careful to point out that they are "not open to debt write-offs," German lawmakers (who preferred to remain anonymous) suggested "possible easing of repayment terms."
Greek 10Y bond prices (and stocks) are tumbling, pushing the yield well north of 10% once again - the highest in 15 months - as Bild reports Germany warning of bank runs and systemic financial system collapse. Having noticed the weakness in financial assets that this caused, several European talking heads are out now trying to calm the waters with Germany's Michael Fuchs confirming "systemically [Greece] is not relevant anymore," but as one trader noted, for now, "investors seem wary of catching the falling knife."
Those waiting to see if the crude crash would lead to any sizable adverse impact on the US trade deficit in November, as lower production led to higher imports if only on paper, the answer is yes, but in the opposite direction: instead of increasing or dropping just marginally from October's $43.4 billion (to the $42 billion consensus estimate), the November trade deficit tumbled by 7.7% to $39 billion the lowest print since December 2013, as a result of a 2.2% drop in imports coupled with a 1% decline in exports. But it was shale crude once again that was the swing factor, which was massively produced as domestic producers scramble to offset declining prices with extra volume, because as the data showed, in November the US imported the smallest crude amount by notional since 1994, and the lowest cost crude since 2010.
It has been a busy few days for Germany. In the space of a week, they have warned Greece "there will be no blackmail," adding that a Greek exit from the euro was "manageable," only to hours later deny (clarify) these comments. This was then followed up with beggars-are-choosers Syriza demanding any ECB QE must buy Greek bonds (or else) - which Germany has flatly ruled out - only to see today that Syriza is practically guaranteed to win a "decisive victory" at the forthcoming snap election. So it with a wry smile that we note Bild reports tonight that the German government is preparing for a possible Greek exit, warning of financial system collapse, bank runs, and huge costs for the rest of the EU.