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It appears as if the troika has forced Greece into a humiliating capitulation.  ABC News has a succinct outline of the final package offered to the Greek government which will need to be approved by Wednesday (not much time for a fully democratic debate in the Parliament):

Immediate steps

By July 15, the radical left government of prime minister Alexis Tsipras must get parliamentary approval for four key pieces of legislation in order to “rebuild trust” with the eurozone, the document said.

Reforming Greece’s notoriously complex value added tax (VAT) system and increasing revenue by broadening the tax base.

Improving the “long-term sustainability” of the pension system.

Protecting the legal independence of Greece’s national statistics agency so that government fiscal data is reliable.

Creating an independent fiscal authority and a mechanism to automatically reduce spending if budget targets are missed.

Reforms

“Ambitious” reforms to Greece’s generous pension system, which has already suffered under previous bailouts.

Market reforms affecting Sunday shopping, sales periods, milk and bakeries and pharmacy ownership.

Privatise the electricity transmission network operator ADMIE.

Review and modernise collective bargaining, industrial action and collective dismissals.

Strengthen the financial sector.

Privatisation

Greece will park assets for privatisation worth up to 50 billion euros ($74 billion) in a special fund based in Athens. Some 25 billion euros of that will go towards recapitalising Greek banks left near-empty due to a limiting of emergency European Central Bank funds. It will also help reduce its debt mountain and go towards investment.

The asset fund will be set up in Greece under Greek government management but under the supervision of European institutions. Greece opposed initial plans to base the fund in Luxembourg.

Government

Greece must de-politicise the administration under EU monitoring – a measure critics say is designed to remove officials from Mr Tsipras’s leftist Syriza party from their positions.

Return of the Troika

Greek officials must “fully normalise working methods with the institutions, including necessary work on the ground in Athens”. This is code for a return of the Troika, the creditor institutions of the European Commission, European Central Bank and International Monetary Fund responsible for monitoring Greece’s two previous bailouts, whose officials were kicked out of Greece by Mr Tsipras after his election amid widespread loathing.

Consult with the Troika on “all draft legislation in relevant areas”.

Amend laws

Reverse laws brought in by the Syriza government since the election that run counter to Greece’s earlier bailout arrangements in 2010 and 2012, except for a key humanitarian law.

Bailout size

The third bailout fund for Greece could amount to between 82 billion and 86 billion euros. Eurozone leaders agreed to take note of “urgent financing needs” to meet debt payments of 7 billion euros by July 20 including a huge ECB loan and another 5 billion by mid-August.

Banks

Ten to 25 billion euros should be set aside for bank recapitalisation or liquidation.

Debt

In response to Greek pleas for a reduction in a mountain of debt worth nearly 180 per cent of its GDP, eurozone finance ministers are “ready to consider … possible additional measures” including longer grace and payment periods. This would be considered after a first review of a new Greek bailout program, possibly in October.

But any “haircuts” which would write off debt are ruled out.

International Monetary Fund

The International Monetary Fund, which was involved in the previous two Greek bailouts, must be involved in any new program “as a precondition”.

EU loans

The European Commission is ready to lend Greece 35 billion euros until 2020 to boost jobs and growth.

In short, Greece gives up almost all its sovereignty.  Indeed, the deal implicitly requires Greece to give up the most sacred aspect of sovereignty–territory–through the privatization clause.  Greece may be forced to sell some of its islands or some of its archaeological sites if there are private buyers.

But the most astounding aspect of the deal is that it will not solve the problem.  It will further immiserate Greece making it even less likely for it to repay its loans.   But its creditors will most likely make back a healthy profit on the loans they provided to the country.

Wolfgang Münchau wrote an essay for today’s Financial Times which is truly insightful.  In it, he argues:

“A few things that many of us took for granted, and that some of us believed in, ended in a single weekend. By forcing Alexis Tsipras into a humiliating defeat, Greece’s creditors have done a lot more than bring about regime change in Greece or endanger its relations with the eurozone. 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.”

He goes on to suggest that the euro has only benefited Germany, the Netherlands, and Austria:

“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.”

I suspect that we have just witnessed the beginning of the end of the European experiment.

The Shanghai Co-operation Organisation is an alternative security organization created by the Russians to offer a counterbalance to Western power.  When it was created in 2001 its members included  China, Kazakhstan, Kyrgyzstan,Russia, Tajikistan, and Uzbekistan.  It has not been particularly active so far but today India and Pakistan have begun their accession to the group, undoubtedly enhancing the credibility of the organization as a genuine alternative security arrangement to NATO.  It is, however, difficult to imagine these countries reaching solid agreements on specific issues other than their desire to create a more multipolar world.

Finance Ministers of the 19 states in the eurozone spent the day today debating whether Greece should be lent money to repay its debts.  There was no agreement today, but the talks are expected to resume on Sunday and the fate of the European Union rests in the balance.  The issue apparently is whether the Greek government can be trusted to keep its promises of reform.  The hard line reflects five years of negotiations that have essentially accomplished nothing.

Greek Prime Minister Tsipras has submitted another proposal to the troika to prevent a Greek default.  It is remarkably close to the proposal that Greek voters rejected in the referendum, although there are some changes.  Bloomberg summarizes the differences between the June and the July proposals.  Whether the new proposal is viewed as a capitulation or as a concession to reality will be something for the Greek people to decide.  The key omission is that there does not seem to be any provision for writing off some of the debt.  I continue to be amazed that serious people continue to believe that the entire debt is repayable without some outside stimulus.

The onus is now actually on Germany, and, more specifically,  Chancellor Merkel.  Writing in the Financial Times, Stefan Wagstyl argues that Merkel is in a “lose-lose” situation:

“She must decide whether to back a new loan programme and keep a troubled country in the common currency — or save the money and face the unpredictable consequences of Grexit and the ignominy of a first-ever reversal in the long history of EU integration.

“For the chancellor, a rescue risks widespread complaints from German taxpayers, who have already borne the brunt of two Greek bailouts. It could also provoke a large revolt in her conservative CDU/CSU bloc where MPs are fuming not only at the demands by Greek prime minister Alexis Tsipras but also his seeming contempt for the country’s creditors.

“But, given her stature, a Grexit would leave her carrying much of the international criticism for a manifest failure of EU solidarity.”

Indeed, the former Finance Minister of Greece, Yanis Varoufakis, makes the argument that the German Finance Minister, Wolfgang Schäuble, wants to force Greece out of the eurozone in order to “discipline” France:

“What do I mean by that? Based on months of negotiation, my conviction is that the German finance minister [Schäuble] wants Greece to be pushed out of the single currency to put the fear of God into the French and have them accept his model of a disciplinarian eurozone.”

The price Germany would pay for appearing to be the “bully” in the European Union would be the long-run dissolution of the Union, hardly something that Merkel could desire.   But the short-run costs of alienating her Party’s base would be the loss of effectiveness and even power in Germany.

An article in the most recent issue of Science suggests that we may have already passed the tipping point for a significant rise in sea levels because of global warming.   The new study looked at three previous periods of warming and found that the 2 degree Celsius limit that most use as an overall tipping point for the planet as a whole has led to significant sea level increases due to polar ice melting.  The study projects a 6 meter increase in sea levels by the year 2100 given the current levels of greenhouse gas emissions.   To get an idea of how this would affect the world, here is a list of the major cities in the world that would be inundated by such an increase.  Unfortunately, all the cities are in Asia because they are ranked by population.  In the US, for example, Miami, New York, Philadelphia, and Boston would also be seriously affected.   The chart comes from Climate Central which has some incredible information based on the projected increase.

New information suggests that the oil company now known as ExxonMobil knew about the risks of carbon dioxide emissions toward the problem of climate change as early as 1981.  Nonetheless, it continued for many years to fund groups, so-called climate change deniers, that argued that there was no scientific evidence about the link.  Although the company now acknowledges the human role in climate change, by some estimates, it spent about $30 million supporting groups denying that climate change was a real problem.

The Pew Research Center has conducted research that the global middle class–a product of the process of globalization–is smaller than we have long assumed.  According to the study:

“Only 13% of the world’s population fall into the category of ‘middle income,’ living on between $10.01 and $20 a day—an annual income of between $14,600 and $29,000 for a family of four, which is barely above the official US poverty line.”

The vast majority of these people live in either Europe or North America, and about 71% of the global population still live below this level.

The humanitarian crisis in Greece is difficult to comprehend and completely under-reported in the maze of economic gibberish.   The health system is no longer available to about 25% of the Greek population and hospitals have cut their budgets as much as 50%.  Europe is beginning to plan for a massive humanitarian effort in Greece if the economic crisis is resolved.   In addition to the social crisis, Greece has already received more refugees from abroad (primarily from Syria and Africa) than it did in all of 2014.

There were some curious cyber incidents today:  the computers for United Airlines, the New York Stock Exchange, and the Wall Street Journal all experienced problems.  These problems were explained as internal problems, but there is a clear sense that something else was afoot.   Last night, Anonymous tweeted: “Wonder if tomorrow is going to be a bad day for Wall Street….We can only hope”   I doubt that we will ever really know what happened, but in trying to figure it out I came across a site that tracks cyber attacks across the world.  It is called Norse and it tracks live attacks in real time.  Fascinating stuff.

David Azoulay, Israel’s minister for religious services, has doubted the authenticity of Reform Jews as actual Jews.  Azoulay is a member of the Shas Party in Israel, an ultra-orthodox party, which became part of Prime Minister Netanyahu’s government after the last election.  Many American Jews are Reform Jews, and the message was not well received.  The Prime Minister was quick to point out that Azoulay’s statements “do not reflect the position of the government.”  But as a Cabinet Minister, Azoulay does have a significant voice.

In 1995 8,000 Muslim men and boys from the Bosnian town of Srebenica were massacred.  The UN Security Council today introduced a resolution condemning the massacre as genocide, but despite receiving 10 votes (there were four abstentions, including China), the measure did not pass because of a Russian veto.   Russian U.N. Ambassador Vitaly Churkin characterized the resolution as “not constructive, confrontational and politically motivated.”  Russia is a long-time ally of Serbia, whose forces were accused of committing the massacre.

The European economic malaise is murkier than it ever has been.  Ambrose Evans-Pritchard is one of the most connected economic journalists in Europe and he has an explosive piece in The Telegraph.  In the article, Evans-Pritchard contends that Greek Prime Minister Tsipras actually expected that the Greek people would vote “Yes” in the referendum and had no back-up plan when the results came in to reject the bailout offer.  Tsipras was blown away by the demands of Greece’s creditors and made the decision to hold the referendum as a graceful way to capitulate to those demands.  The demands, according to Evans-Pritchard, were extraordinary:

“Instead they were confronted with a text from the creditors that upped the ante, demanding a rise in VAT on tourist hotels from 7pc (de facto) to 23pc at a single stroke.

“Creditors insisted on further pension cuts of 1pc of GDP by next year and a phase out of welfare assistance (EKAS) for poorer pensioners, even though pensions have already been cut by 44pc.

“They insisted on fiscal tightening equal to 2pc of GDP in an economy reeling from six years of depression and devastating hysteresis. They offered no debt relief. The Europeans intervened behind the scenes to suppress a report by the International Monetary Fund validating Greece’s claim that its debt is ‘unsustainable'”.

The situation now is that Tsipras cannot really back down, and Germany also believes that it cannot offer debt relief without encouraging other countries in trouble to follow the Greek path.   It seems inevitable that Greece will have to leave the eurozone at some point.  The Greek economy will collapse, but slowly recover.  The biggest loser will be the European project: it cannot be a union of equals given the demonstration of German power and will.

Negotiations in Vienna between the P5+1 and Iran have been going on even though the 30 June deadline expired.  The parties have extended the deadline to the end of this week and it seems clear from the rhetoric that a deal seems possible, but the most difficult issues remain to be resolved.  According to Reuters, those issues include:

“…Iranian demands for a U.N. arms embargo and ballistic missiles sanctions to be lifted, the timing of U.S. and EU sanctions relief, and future Iranian nuclear research and development.”

The agreement will still have to be submitted to the US Congress, and there are reasons to believe that there will be strong opposition to it.

The results of the Greek referendum were clear: 61 percent of the Greek people voted to not accept the terms of the troika’s bailout.  The global response to the vote has been largely negative, most analysts suggesting that the Greeks are unwilling to make the sacrifices necessary to sustain what they regard as an indulgent life-style.  Most of those analysts support the German contention that the Greeks must cut more government spending.  That characterization does not square with the actual behavior of the Greek government.  Greece has cut government spending from roughly 13 billion euros to 10 billion euros–a cut of 23 percent.

I am not sure what the German population would do in the face of a 23% reduction in  government spending, but I am not aware of any people that would regard such cuts as indulgent.  For those of you who read German, Zeit  has an interview with Thomas Piketty, the French economist who published the highly influential book, Capital in the 21st Century, in which Piketty notes that:

… Germany is really the single best example of a country that, throughout its history, has never repaid its external debt. Neither after the First nor the Second World War.However, it has frequently made other nations pay up, such as after the Franco-Prussian War of 1870, when it demanded massive reparations from France and indeed received them. The French state suffered for decades under this debt. The history of public debt is full of irony. It rarely follows our ideas of order and justice.

In 1953, “…the Federal Republic of Germany’s creditors — 20 countries including Greece — indeed agreed at a London conference to write off 55 percent of the country’s 32.3 billion Deutsche marks of foreign debt.”  I suspect that Piketty will not be getting any lecture invitations in Germany any time soon.

Most interestingly, a split is emerging in the troika.  The IMF has indicated that it believes that Greece needs debt relief and that reliance solely on the policy of austerity has not worked.  The IMF report, “Debt Sustainability Analysis”, was released three days before the referendum over the very strong objections of the European members of the IMF.   The US, however, and the vast majority of other members of the IMF were in favor of its publication.  The US has been arguing for some time for debt relief for Greece.

Tunisia continues to serve as a bell weather for the Arab world.  Many Tunisian youth are apparently attracted to radicalism because of the disillusionment that set in after all the twists and turns in Arab politics since 2011.  The fundamental catalyst seems to be a sense among Tunisian young people that there really is no advantage in playing by the rules of the current system.  The issue is not necessarily poverty, although that is a serious matter.  The issue seems to be that even getting an advanced degree is no guarantee of getting a good job, and that political connections are more important.

RT is reporting that up to 120 US military personnel are operating in Somalia trying to maintain active drone strikes against al-Shabab radicals.  Al-Shabab has been responsible for many terror attacks, including some particularly gruesome attacks against civilians in Kenya.  Interestingly, these US forces are working with the African Union’s Mission in Somalia (AMISOM), but the US itself admits only a small number of Special Operations forces in the country.

The United Nations Human Rights Council has called for an end to child, early, and forced marriages.  About 15 million girls are married every year in circumstances that deny them a voice in the arrangement, and the UN wants to label such practices as a violation of fundamental human rights.   These practices are embedded in cultural mores that are difficult to change, but the UN makes the argument that denying girls control over the lives limits the development prospects of a society and reinforces patterns of poverty.

I am going to take a vacation from the blog until Monday.  By then we will know the results of the Greek election and who knows what else will happen.  But I am going to disengage for a few days.

Robert Zaretsky has written a great op-ed essay for the New York Times entitled “What Would Thucydides Say About the Crisis in Greece?” which uses the Melian dialogue as a foil to discuss the current crisis in Greece.  It is an instructive essay on how to use history to enlighten.  My only complaint is that the photograph accompanying the essay identifies Thucydides as a “philosopher.”  There is no doubt that all people who explore the realm of ideas are philosophers.   But Thucydides was first and foremost a general who then became a historian.

Greece is technically in default, but the IMF has decided to assert simply that the Greek debt is “in arrears.”  The distinction is political and psychological–default is considered to be a term to avoid in order to prevent panic.  But at some point the term will not be avoided if Greece does not begin to pay down its debt.  Sovereign default is  not typical, but it has happened in the past; indeed, Germany has defaulted 4 times in modern history.  There is no template for sovereign default:  some countries have had a miserable time while others have navigated the storm fairly well.  The Washington Post has a good article on historical sovereign defaults.

The deadline for the completion of an agreement between the P5+1 and Iran has been extended until 7 July.  The principal negotiators are in Vienna and all sides appear to be committed to finalizing the interim agreement.  The International Atomic Energy Agency has confirmed that Iran has met the interim deadline for conversion of about 4 tons of enriched uranium into an oxide form that is less useful in the construction of a nuclear bomb.  That verification is a very important step toward the final agreement.

Aside from all the jitters surrounding the Greek default, the other economic story worth following is the Chinese stock market.  It went up by 50% in the first 5 months of the year, and has declined by 25% in the last month.  The Chinese government has been trying to stabilize the market, but much of the meteoric rise of the market was due to margin purchases by ordinary citizens who have not yet developed the skills of stock picking. According to the China Household Finance Survey conducted by the Southwestern University of Finance and Economics in China:

“Reports say the China Household Finance Survey, which is conducted by Southwestern University of Finance and Economics, found nearly 6 percent of new investors were illiterate, a quarter finished only elementary school and more than third left the education system at junior high school level.”

Buying on margin is a very risky process since a buyer only puts down a small percentage of the value of the stock, but the full price can be demanded at any time (and usually is when the price begins to fall).  When the sellers begin to demand full price from those who bought on margin, the end result is usually a precipitous decline.  We will have to see if the Chinese government can calm the markets.

Despite vehement Russian denials, evidence uncovered by a Ukrainian defense force indicates that the Russian military presence in eastern Ukraine is quite substantial.  Dnipro-1, a volunteer defense force in Ukraine, flew a drone over a Russian military encampment and posted the video on You Tube.  The military presence is substantial and is designed to prevent the Ukrainian government from feeling too comfortable in forging closer relations with the European Union and the US.  Although the film is quite persuasive, there is little that the West can do to force the Russians to leave.

ATMs in Greece:

Who is Katie Hopkins?