Europe’s Biggest Solar Company Goes Up In Smoke

By Anthony Watts – Re-Blogged From http://www.WattsUpWithThat.com

Meanwhile: African Nations To Build More Than 100 New Coal Power Plants

Germany’s SolarWorld, once Europe’s biggest solar power equipment group, said on Wednesday it would file for insolvency, overwhelmed by Chinese rivals who had long been a thorn in the side of founder and CEO Frank Asbeck, once known as “the Sun King”. A renewed wave of cheap Chinese exports, caused by reduced ambitions in China to expand solar power generation, was too much to bear for the group, which made its last net profit in 2014. —Reuters, 11 May 2017

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Update On Brexit

By Alasdair Macleod – Re-Blogged From http://www.Silver-Phoenix500.com

This article looks at the background to Brexit negotiations and concludes that Britain is negotiating from a position of strength, while the EU is increasingly in a position of financial difficulty. Not only will the European Commission be forced to scale back its spending and redistribution of resources, but the euro project is threatened by capital flight between member states, despite the early signs of economic recovery which should be restoring market confidence. Politicking aside, pressure is mounting on the EU to defuse the disruption of Brexit by agreeing to a mutually beneficial deal as soon as possible.

EU Finances Are Getting Desperate

The EU cannot afford to prevaricate over Brexit because a bad Brexit risks causing it immeasurable harm. Not only does big business in Europe want a Britain with which it can freely trade, but confidence in the European Project is rapidly diminishing. The EU is a mega-state that is fading, and no one knows how to ensure its survival. Inevitably, the failings of the EU are catching up with it, and Britain’s leaving exposes the financial consequences of decades of bad management, capital destruction through wasteful redistribution and the lack of any contingency planning.

Britain’s €8bn annual contribution to the EU budget is almost the same as the cost of administering the whole Brussels establishment, so Brexit will create a budget shortfall that is almost total, which Brussels will have to make up from the remaining members. Inevitably, some of the redistribution to Brussel’s pet projects will end up being cut as well. It is for this reason that the Brussels politicians hope for a capital payment from Britain.

The Commission also has a commitment to redistribute member funds estimated at €238bn. It must have assumed prior to last year’s referendum that Britain would vote to remain and pay its share. Instead, it voted for Brexit, and the Commission will have to find the money from a capital contribution either from Britain, somewhere else, or cancel some of the projects. With these problems, the Commission is in a difficult position, wrong-footed by Brexit. And when Theresa May says no deal is better than a bad deal and means it, it really could mean an end to Brussels as we know it.

TARGET2 Deteriorates Further

Probably the most alarming statistic coming out of the Eurozone is the continual growth in TARGET2 imbalances. The chart below shows the latest position.

In a normally functioning TARGET2 system, imbalances should be minimal, as they were before the financial crisis. But the ECB says there’s nothing to worry about, which would be true if these imbalances are just a passing phase, to be reversed when normality returns. After nine years, this appears increasingly unlikely.

These imbalances arise because of capital flows, whereby money moves from one nation to another without any underlying trade. If a Spanish bank has deposits withdrawn from it, the Banco de España steps in and covers it. This creates an asset on the Bank of Spain’s balance sheet, matched by a liability on TARGET2. The redeposit in Germany is reflected by an increase in the German bank’s reserves held at the Bundesbank. The Bundesbank’s liability to the German bank is matched with a credit on TARGET2.

Therefore, TARGET2 reflects capital flight, or silent runs on some of the national banking systems. The surpluses at the Bundesbank, the Banque du Luxembourg and the Finnish Central Bank are all rising into new record territory. The Netherlands Central bank saw a dip ahead of the recent election, but that balance is on the rise again as well. On the most recent figures to March these balances totalled €1.186tn, up €119bn over Q1. The balance at the Bundesbank rose a further €14bn in April to €843bn, the figures for the other NCBs not yet being available. It is clear from these numbers that capital flight, particularly from Italy and Spain, is still increasing, despite reports of a tentative economic recovery.

The third largest negative balance is of the ECB itself at €183bn, which relates to the ECB’s QE policy. The negative balances at the NCBs are net of the credits created thereon, implying that the degree of capital flight from these countries is understated.

The imbalances on TARGET2 are ultimately the liability of the ECB, not the individual NCBs. Yet, there’s no provision in the ECB’s accounts for the risk of an NCB leaving the system. This is a good reason why a nation cannot be allowed to leave the Eurozone.

By the end of January, the ECB had bought an estimated €1.34tn of government bonds, €230bn of covered bonds (mostly pooled mortgages), and €60bn of corporate bonds. To these purchases can be added a further total of €220bn to date, giving us a total today of €1.85tn. The valuation risks on these bonds are not reflected on the ECB’s balance sheet, which at December 2016 disclosed only €160.8bn, listed under “Securities held for monetary purposes”. So, only 11% of the total bonds bought through QE by end-December are shown on the ECB’s balance sheet. Where the price risk lies on the other 89% is important, because when interest rates are normalised, the losses could be considerable.

In that event, the allocation of losses is decided by the ECB’s Governing Council, ruling on both the way and the extent to which losses are distributed between the NCBs and the ECB. And if price inflation really takes hold, not only will government finances and private sector debt be enmeshed in a debt trap, but the ECB and the NCBs will all need to be recapitalised as well.

EU Politicians Are In Panic Mode

Concerns over the EU’s finances are almost certainly behind the wild statements being made by some EU leaders. According to Jean-Claude Junker, Theresa May is living in another galaxy, which begs the question about his own galactic residence, relatively speaking. After requests from several member states, which suddenly realise they are going to lose subsidies, the Commission has mechanically increased its demand for an up-front payment by Britain from €60bn to €100bn. This is despite the EU’s own legal advice from the Commission’s lawyers that no money can be claimed. France, Hungary, Italy, Spain and Poland also want Britain to continue to pay their farmers after Britain has left the EU.

It’s become like an opera buffa, a satire on a barely tangential relationship between the EU Commission and British democracy. Jean-Claude Junker, prefacing a recent speech in French said somewhat absurdly that English is losing its importance in Europe due to Brexit, despite it being the most commonly spoken. This is the mentality against which Britain will be negotiating.

The politicking of the senior commissioners is far removed from democratic reality. When David Davis for the UK sits down opposite Michel Barnier for the EU, does he counter the demand for an up-front payment of €100bn with a lesser amount, or a counter-claim for Britain’s share of the estimated €154bn of assets owned by the EU, which the EU side fails to mention? A claim on EU assets is equally flaky. Davis can only accept a position in accordance with his legal advice, or at least not very far adrift from it, because he has democratic accountability, though Barnier does not. Both the EU’s and Britain’s lawyers say there’s no capital liability for Britain, and there’s no mention of it in Article 50, or articles referred to in it. Capital payments and asset claims are just a try-on.

The British position is that no treaty is better than a bad treaty, so most of the movement in negotiations must come from the EU side. As their treatment of Greece illustrated (conveniently reminded to us last week by Yanis Varoufakis in his new book, Adults in the Room), the EU might be obstinate to the point of destruction. Fortunately for Britain, it is not in the position Greece was, and can afford to walk away.

But the Commissioners know of no other approach other than to bully. Remember that when Ireland refused to ratify the Nice Treaty in a referendum, the EU told them to vote again, and get it right. They did the same again to Ireland over the Lisbon Treaty. Denmark was told to hold a second referendum on Maastricht, and to get it right as well. Perhaps they thought that by upping the cost of leaving, the UK might back down and go for a soft Brexit, or even decide to stay after a second referendum. So, when Junker had dinner with Theresa May on 26th April and was told plainly Britain’s point of view, he threw his toys out of the pram.

All they have achieved is to get the British electorate’s collective backs up, just as Obama did when he said Britain would go to the back of the queue on T-TIP. Thanks to these threats, it is now likely that Mrs May will have an even greater landslide victory in the upcoming general election, with an increased number of ardent Brexiteers for MPs.

All that is for public consumption. Fortunately, behind the scenes the officials doing the real negotiation are quietly making progress. Politicking is one thing, practicality is another. According to Daniel Korski, who was deputy head of the No 10 Policy Unit, writing in an article for last Wednesday’s Daily Telegraph, EU negotiators now accept it is in everyone’s interest to avoid a cliff-edge. Many months ago, Iain Duncan-Smith reported that German manufacturers had secretly agreed with Angela Merkel’s administration that any trade barriers would be minimal. The reality behind the rhetoric is European business, which after all employs EU residents and collects and pays the bulk of the taxes, will determine the outcome.

In theory, Britain has two years from March before formally leaving, though Article 50(3) allows for this period to be extended by agreement. This opens the possibility for transitional arrangements if need be. Furthermore, the EU side will be able to ratify the decision on the new basis of qualified majority voting. This means the support of Germany, France, Italy and Spain for an agreement should be sufficient, so Britain is likely to target these governments behind the scenes, along with their major corporations. The reality is European businesses want to protect their markets and investments in the UK, and perhaps to use the UK after Brexit as a springboard for global business.

Therefore, expect covert briefing by the British for the major European car manufacturers, the banks, and any other major multinationals based in these countries. Contentious issues, such as agricultural subsidies and citizens’ rights, while important, are unlikely to stand in the way of an agreement. However, the procedures of the EU, which involve all 27 nations being consulted, usually involves protracted lead-times. The only way trade and the rights of affected citizens can be agreed within the two-year time scale is for the Commission to initially work with Germany, France, Italy and Spain to complete negotiations, keeping consultations with the other states to the bare minimum, before presenting a final solution to the other states. Otherwise, a lengthy time extension will almost certainly be required.

There can be little doubt where the power lies. Britain can walk away, the EU cannot. Britain’s Commonwealth members rejoice at Brexit. Furthermore, Britain can rapidly come to a Most Favoured Nation agreement with China, which would take decades for the EU to achieve. China is already sending freight by rail to Europe, including the UK. A quick MFN deal with China opens a trade network which will eventually include the whole of Asia and those parts of Europe not bound by the EU. In the fullness of time, this is likely to be a far better arrangement for Britain than being restricted by the EU’s trade agreements. Combining the Commonwealth and Asia in a massive liberated trade arrangement has the benefit of making the UK a suitable base for European companies selling services into what promises to become the largest trading area in the world.

Being free of the EU is a no-brainer, and the British electorate is beginning to understand it. The City is also anticipating the new opportunities with growing relish.

All this assumes that the worrying TARGET2 statistics don’t presage a banking or financial crisis by March 2019. Nobody will be immune to a banking blow-up in Euroland, but from the British point of view there must be an urgency to get out of the EU before it happens. It also assumes Theresa May gets the electoral mandate she seeks on 8th June.

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What Color Is Southern Europe’s Parachute?

Re-Blogged From Stratfor

Uneven Recoveries

In Spain and Portugal, unemployment figures decreased more quickly last year than anywhere else in Europe. In February, the year-to-year unemployment rate fell from 20.5 percent to 18 percent in Spain, while Portugal’s rate decreased from 12.2 percent to 10 percent. A drop in official unemployment rates can be misleading: people who have given up looking for work are not included in certain joblessness calculations. But in Spain and Portugal, the drop in unemployment was accompanied by an actual increase in the number of people working. In Spain, 16.9 million people had jobs in 2014; by 2016 that number had increased to 18.5 million. In Portugal, job numbers rose from 4.4 million to 4.6 million between 2013 and 2016.

Eurozone Unemployment Chart

Nonetheless, the improvement in both countries largely reflects an increase in non-permanent jobs. Around 90 percent of new contracts in Spain and 80 percent in Portugal are for temporary jobs. Among EU states, according to Eurostat, only Poland has more workers under temporary contracts than Spain and Portugal. In addition, the demographic profile of workers in those countries under temporary contracts is anomalous: More than half of temporary workers in countries like Germany or Sweden are younger than 29. In Spain and Portugal, on the contrary, around a third of temporary workers are 30–39 years old. According to a report by the European Parliament, only one in five workers under temporary contracts in Spain and Portugal actually transition to permanent contracts.

EU Part-Time Employment Chart

To some extent, the way Spanish and Portuguese employment markets operate account for the labor precariousness. Despite recent reforms, labor laws in both countries are still relatively rigid, and the cost of dismissing workers remains high. This makes many companies opt for temporary contracts when hiring staff. Sometimes employers offer temporary contracts to reduce costs, but the practice also gives them flexibility to downsize during times of economic uncertainty.

Economic structures also play a significant role in the type of jobs created. For example, the services and agriculture sectors rely more heavily on temporary jobs than does industry. In services and agriculture, jobs tend to be more seasonal, with particularly high rates of temporary and off-the-books positions. In Southern European countries, tourism (and associated service industries like hotels and restaurants) provides a bigger source of employment than in most of their northern peers. Tourism accounts for roughly 12 percent of all employment in Spain, the second highest proportion in the European Union after Malta. Spain and Portugal have experienced a recent tourism boom, driven partially by rising political and security concerns in competing destinations in the Mediterranean. A significant agricultural sector in both countries also adds to their temporary job totals. Agriculture represents around 7 percent of employment in Portugal and 4 percent in Spain, compared with around 2 percent in countries like Germany or Sweden. These economic structures mean that job precariousness is not an entirely new phenomenon in Spain or Portugal.

Meanwhile, the effects of the European economic crisis have led to shrinking salaries. In Spain, the average wage fell by about 3.5 percent between 2011 and 2014. (It has recovered slightly since then.) In Portugal, the average wage has been stagnant since 2012. Recent reforms in labor legislation, which had the goal of making these economies more competitive, account for a portion of the earnings decrease. As members of the eurozone, Spain and Portugal cannot use currency devaluation to regain competitiveness during crises. As a result, they chose to take measures to reduce labor costs (a process commonly known as “internal devaluation”), including reducing the role of collective bargaining in salary negotiations and making it easier and cheaper for employers to dismiss workers. In Spain, hourly labor costs increased by 28 percent between 2004 and 2011 but remained flat between 2011 and 2015. In Portugal, labor costs per hour had increased by almost 18 percent between 2004 and 2012, but dropped by 0.7 percent between 2012 and 2015.

Both countries are grappling with high rates of youth unemployment, which during the peak of the crisis in Spain exceeded 50 percent of the active young population (people under 24 who are looking for a job, excluding students) and reached about 40 percent in Portugal. To a certain extent, emigration and financial support from family members mitigated the effect of high unemployment rates among young workers.

Long-term joblessness presents perhaps a greater problem. Roughly half of those unemployed in Spain and Portugal have been out of work for more than a year. In general, the longer that people are out of the workforce, the harder it is for them to find a job. Motivation to keep looking for work also drops off. This suggests that even if the economic recovery consolidates in these countries, the pace of the decline in unemployment rates could slow in coming years.

Misleading Improvements

In another southern economy, Greece, structural factors and the economic crisis have likewise fueled high unemployment. But even before the crisis, the highest share of employment came from sectors with more temporary positions: tourism, retail and agriculture. Meanwhile, labor productivity rates in the portion of the Greek industrial sector with labor- and resource-intensive activities were often below the EU average.

EU Temporary Employment Chart

Greece’s unemployment rate has shrunk over the past five years, but so has the labor force (that is, the number of people either employed or looking for a job) — a result of multiple factors, including retirement, emigration and the fact that unemployed people who quit looking for a job are not considered part of the workforce. In the fourth quarter of 2016, according to the Hellenic Statistics Office, 3.64 million people had jobs in Greece, virtually the same as a year earlier. As in Portugal and Spain, unemployment in Greece fluctuates seasonally: employment rates rise in summer and decrease in winter. While the total number of people with jobs in Greece rose from 2015 to 2016, the figure is still below what it was in 2012. Moreover, official statistics tend to hide the fact that hundreds of thousands of Greek workers have accepted jobs that offer either low pay or only part-time or temporary status. According to Eurostat, the percentage of involuntary part-time jobs — those held by workers who would rather have full-time employment — in Greece rose from 45 percent to 72 percent over the past decade.

As in Spain and Portugal, the Greek government sought to limit wage growth during the height of the economic crisis with policies such as those replacing collective bargaining with company-based collective agreements. According to data compiled by the Organization for Economic Co-operation and Development, the average wage in Greece fell by 20 percent between 2009 and 2015. Meanwhile, labor costs per hour have dropped by 15 percent since 2008. Greece is the only eurozone country where the minimum wage is lower today than it was a decade ago. But broader and deeper reforms to make the Greek economy more competitive, including modernizing the country’s education system, moving toward deregulation in some areas, and accelerating the privatization process, have been only partially introduced. Tax hikes and spending cuts introduced during Greece’s three bailout programs have cut domestic consumption and turned a recession into a depression.

Slow Rebounds

Italy offers another interesting case: unemployment never reached the levels it did in Greece, Spain or Portugal, but joblessness has resisted the efforts by several governments to decrease it. Since 2012, the unemployment rate has consistently hovered above 11 percent. (It was 6 percent a decade ago.) Unlike Spain or Portugal, Italy did not respond to the crisis with a unified package of comprehensive labor reforms, but instead implemented a series of smaller reforms, most notably during the governments led by Mario Monti in 2012 and Matteo Renzi in 2014. These reforms sought to weaken protections against dismissal for permanent workers and to increase protection for the unemployed.

In spite of the reforms, the pace of job creation has not fulfilled government promises. According to Italy’s statistics office, 22.8 million Italians had a job in the fourth quarter of 2016 — a modest increase from the 22.4 million registered four years earlier. At the same time, the proportion of the country’s working-age population with jobs grew from 56.3 percent to 57.4 percent. However, many people have been unable to find the kind of job they want. According to Eurostat, the number of Italians working part-time grew by almost 10 percent between 2002 and 2015, while the average increase for the European Union during that period was 4 percent. Of Italians working part-time, six in 10 would rather have a full-time position. That ratio in 2007 was less than 4 in 10.

Political issues certainly play a role in the trend, as Italian governments tend to be fragile and subject to pressure from multiple sources, including from trade unions and local and regional economic and political interests, making reforms difficult to introduce. Italy also remains beset with pronounced geographic contrasts, as employment rates remain considerably higher in its relatively less-developed and largely agricultural south than in its industry-heavy and more prosperous north. Italy’s weak economic growth does not support robust job creation, another factor keeping unemployment numbers high. Since Italy’s economy emerged from recession in 2014, it has not exceeded 1 percent annual growth.

A Potential Threat to Long-Term Growth

Job insecurity is not exclusive to the southern members of the eurozone: Countries in Central and Eastern Europe like Poland and Bulgaria also have high rates of temporary employment or jobs with low salaries. And a high number of jobs in wealthier countries like the United Kingdom and Austria include employment conditions that labor rights, such as “zero hour contracts” that offer no guaranteed minimum hours of work.

But unemployment rates rose faster in Southern Europe, where the crisis hit harder. High unemployment and insufficient economic growth in that region exposed the fragility of the banking sectors in several countries, raised questions about the sustainability of their public and private debts, and created a fertile ground for the emergence of anti-system political parties that could threaten the survival of the eurozone.

The creation of temporary and precarious forms of employment is a normal phenomenon during the early stages of an economic recovery. Over time, however, they could drag down an economy by limiting the room for growth in domestic demand, for example. In addition, rising income inequality feeds growing social and political tensions. While unemployment rates are dropping across the board, issues such as job insecurity, low pay, long-term unemployment, and few opportunities for training or career advancement could weigh down Southern Europe’s incipient economic recovery.

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Pension Crisis In US And Globally Is Unavoidable

By Lance Roberts – Re-Blogged From http://www.Silver-Phoenix500.com

There is a really big crisis coming.

Think about it this way. After 8 years and a 230% stock market advance the pension funds of Dallas, Chicago, and Houston are in severe trouble.

But it isn’t just these municipalities that are in trouble, but also most of the public and private pensions that still operate in the country today.

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The Decline And Fall Of The Euro Union

By Alasdair Macleod – Re-Blogged From http://www.Gold-Eagle.com

This article identifies the headwinds faced by the EU in the wake of Brexit. Without the UK, not only does the EU lose much of its importance on the world stage, but the Commission’s budget is left with an enormous hole. That is the decline. The fall is well under way, with capital flight significantly worse than generally realised, as a proper understanding of TARGET2 imbalances shows. Not only is the ECB running out of options, but without major support from Germany, France and Italy, Brussels itself faces a financial crisis. In a highly unusual move, Jamie Dimon of JP Morgan in a letter to his shareholders this week backtracked on his earlier pre-Brexit threat to move jobs from London, declaring that the problem is Europe itself.

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The Climate Yawns

By Holman W. Jenkins, Jr., Wall Street Journal – Re-Blogged From http://www.WattsUpWithThat.com

While many people seemingly have forgotten that Clean Power Plan was a legalistic nightmare, I think it is important to remember the CPP was opposed by 31 states (out of 50) in court. – Steve Heins

Donald Trump is no more a planet wrecker than Barack Obama (as measured to the third decimal).

Then why, if you’re a Democrat, put yourself in that position in the first place to take blame for killing coal jobs? Why enact a costly regulation to do what the market was doing for free? When everybody else wanted to blame the Florida recount for his 2000 defeat, Al Gore was smart enough privately to blame gun control. When you lose your home state as presidential candidate, something is wrong. The same blundering ineptitude explains  the Obama alliance with the Greens.

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The Next Crisis Is The Mother Of All Counter-Party Risks (Part 1)

By Gijsbert Groenewegen  Re-Blogged From http://www.Gold-Eagle.com

What is counter-party risk? And how many people really are aware of the consequences of systemic counter-party risk?

Counterparty risk also know as default risk is the risk to each party of a contract that the counterparty will not live up to its contractual obligations. Counterparty risk is a risk to both parties and should be considered when evaluating a contract. In most financial contracts, counterparty risk is also known as default risk, a risk that a counter-party will not pay as obligated on a bond, derivative, insurance policy, or other contract. Financial institutions or other transaction counterparties may hedge or take out credit insurance or, particularly in the context of derivatives, require the posting of collateral. Offsetting counterparty risk is not always possible, e.g. because of temporary liquidity issues, malfunctioning of markets or longer- term systemic reasons.

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