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Greece’s last chance for a deal with creditors awaits in Riga, Latvia

EU leaders will meet on Thursday and Friday in Latvia where PM Alexis Tsipras will try to secure a deal with creditors.

Alex Christoforou

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Post originally appeared on Zerohedge.

As we said over the weekend, it’s all about Riga again for Greece. EU leaders will meet on Thursday and Friday in Latvia where PM Alexis Tsipras will try to secure a more favorable outcome than did FinMin Yanis Varoufakis who, last month in Riga, reportedly did more chiding and lecturing than negotiating, a performance that may ultimately cost him his job once all is said and done. The situation is far more urgent this time around, with Greece having tapped its IMF SDR account to make a payment to the Fund and with the banking sector running dangerously low on collateral that can be pledged for emergency liquidity.

A bit more color from Deutsche Bank:

One thing that is starting to come to a head is Greece. With an EU leaders summit in Riga scheduled for Thursday and Friday, we should have a good idea of where current negotiations stand by the end of the week. Talks may well pick up in pace over the next few days with a spokesman for the Syriza party saying on Greek TV (Mega) that ‘we’re striving for a mutually beneficial agreement by Friday’ while pushing the party line that ‘our mandate from the Greek people is to reach an agreement where we stay in the euro area without harsh austerity measures’…

One other factor that will likely add pressure to accelerate negotiations this week is the news over the weekend that Greece came close to being unable to pay the May 12th IMF repayment. According to Greek press Ekathimerini, PM Tsipras sent a letter on May 8th to the IMF’s Lagarde saying that the Greek government would not be able to repay the €750m unless the ECB allowed for Greece to issue more T-Bills. In the end, the government decided that it would only be able to repay after it emerged that Greece could use €650m of Special Drawing Rights issued by the IMF (and in turn exhaust their reserves). Since this, another memo sent by the IMF and reported by the UK’s Channel 4 on Saturday has suggested that Greece will be unable to make the IMF payment due June 5th unless a release of funds is achieved (this marks the next significant payment date).

More details have indeed emerged about Tsipras’ recent dealings with the IMF. As it turns out, Tsipras sent a letter to Christine Legarde early this month warning her that no payment would be forthcoming on May 12 without some manner of lifeline from EU creditors. Here’s more via FT:

Greece came so close to defaulting on last week’s €750m International Monetary Fund repayment that the prime minister warned IMF chief Christine Lagarde he could not pay it without EU aid.

Athens ultimately made the payment without financial assistance from the bloc but only by tapping a rarely used emergency account Greece holds at the fund — an unorthodox transaction that amounted to borrowing IMF funds to pay the IMF.

Alexis Tsipras wrote to Ms Lagarde, warning that the IMF repayment would be missed unless the European Central Bank immediately raised its curbs on Greece’s ability to issue short-term debt.

The letter, first reported by the Greek daily Kathimerini but independently confirmed by the Financial Times, raises questions about how close Athens is to bankruptcy. In addition to payments due to the IMF next month totalling €1.5bn, the Greek government has struggled to meet its wage and pension bills, which must be paid at the end of the month…

Varoufakis, Bloomberg reports, was tipped about the SDR option on a trip to Washington last month:

Greek Finance Minister Yanis Varoufakis had been told about possibility of using IMF SDR holding account on visit to Washington in April, govt still needed permission from IMF before could use it to make May 12 IMF payment, Greek govt spokesman Gabriel Sakellaridis tells reporters.

As far as pensions are concerned, Greece says it will pay government employees in May.

  • GREECE WILL PAY SALARIES, PENSIONS AT END OF MONTH: SPOKESMAN

Assuming the government makes good on that promise, it will quickly run up against another IMF payment on June 5 and as noted above, Athens will default if no deal has been struck by then. The following graphs show government revenues, government spending, and the payment schedule and demonstrate quite clearly why the situation is so urgent:

GreeceRevsVsSpend

 

GreecePayments_0

Here’s Bloomberg’s assessment of the fiscal situation:

How long can Greece carry on? With revenues just about covering the pay and pensions bill, there’s not much left over to make even the small(ish) payments due to the IMF in June. If Greece and its banking sector can limp a little further, the state should get a boost from income tax receipts that usually flow in July. Unfortunately, that might come too late to pay the ECB 3.5 billion euros due on July 20, and the repayment that follows in August looks like an impossible challenge without a disbursement of Eurogroup funds…

Should Greece’s citizens begin to lose faith in a positive outcome to negotiations, it’s quite possible that receipts could falter as more of the usual tax payments are held back and taxable activity is curtailed. Still, some boost to the Treasury’s bank balance is likely in July. General government revenues could be lifted by about 3.8 billion euros compared with the average for the other months of the year. That would get some way towards the figure needed to pay the ECB, though it might not come soon enough to avoid a missed payment…

Of course, making it as far as July depends on how long the Greek banking sector can survive. Absent a change to the haircut imposed by the ECB on Greek banks’ collateral, limitations on emergency liquidity assistance are unlikely to pose serious constraints before mid-July. Greek banks have enough collateral to access 93 billion euros in liquidity. That’s 13 billion euros above the current cap. The four-week average of increases by the ECB stands at 1.5 billion. At the current pace of increase, Greek banks could keep borrowing more for about eight weeks to offset deposit flight.

But the idea that the ECB will continue to prop up the Greek banking sector is becoming more tenuous as Mario Draghi recently came under fire from Bundesbank chief Jens Weidmann who openly accused the central bank of breaking the monetary financing taboo. Rumors that the ECB will soon begin to tighten the screws by raising the haircut on collateral pledged for cash have been making the rounds for weeks and as Bloomberg warns, the move could come at anytime:

A crunch will come if the ECB increases the haircut on Greek collateral to levels not seen since last year. That could be prompted by anything from a complete breakdown in talks to a missed debt payment, the official said. A continuation of the current impasse could even be all that’s needed, the official said.

While talks are centering on whether to give Greece more money, the ECB could raise the stakes if it increases the discount on the collateral Greek banks pledge in exchange for cash under its Emergency Liquidity Assistance program. That could happen as soon as this week, after the Governing Council next meets in Frankfurt on May 20.

GreekLiquidityMay_0

Meanwhile, Commerzbank doesn’t seem to buy the idea that the equivalent of a DIP loan would be sufficient to keep Greece from collapsing in the event Grexit becomes a reality:

Greece probably has no choice but to leave the euro if it defaults as it would likely be unable to source the funds needed to recapitalize its banks, Commerzbank chief economist Joerg Kraemer writes in client note.

If the country were to default, the banks’ claims on the state would be essentially worthless and they wouldn’t be allowed access to new money through the ELA.

Only a fraction of the equity capital needed could be gained from Greek bank bond creditors.

A recourse to bank deposits may also yield little as most accounts are probably under the threshold of EU100k per person which would be spared in any restructuring.

As you can see, the bail-in hints are starting to be dropped, suggesting that in the final analysis, some Greeks may be Cyprus’d. Indeed, the IMF has already discussed this possibility behind closed doors. Here’s FT again:

According to two officials briefed on the talks, at least one board member raised the possibility of presenting a “take it or leave it proposal” to Greece…

The idea of a “Cyprus-like” presentation to Greek authorities has gained traction among some eurozone finance ministers, according to one official involved in the talks.

As for Greek officials, they’ve become quite adept at wholesale denials:

There should be a solution in May so we can resolve our liquidity issues,” Gabriel Sakellaridis told a news conference.

He ruled out a levy on bank deposits to raise cash and said the government would not sign a third bailout program.

Touch Capital Markets’ Andreas Koutras summed up the situation nicely when he gave Bloomberg his best Schaeuble impression:

“There were too many people crying wolf before. But as Hemingway wrote: How did you go bankrupt? Two ways: Gradually, then suddenly.”

References:

http://www.zerohedge.com/news/2015-05-18/shape-greek-endgame-emerges-imf-discussed-cyprus-plan-after-tsipras-warned-looming-d

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FBI recommended Michael Flynn not have lawyer present during interview, did not warn of false statement consequences

Flynn is scheduled to be sentenced on Dec. 18.

Washington Examiner

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Via The Washington Examiner…


Former FBI Deputy Director Andrew McCabe, who arranged the bureau’s interview with then-national security adviser Michael Flynn at the White House on Jan. 24, 2017 — the interview that ultimately led to Flynn’s guilty plea on one count of making false statements — suggested Flynn not have a lawyer present at the session, according to newly-filed court documents. In addition, FBI officials, along with the two agents who interviewed Flynn, decided specifically not to warn him that there would be penalties for making false statements because the agents wanted to ensure that Flynn was “relaxed” during the session.

The new information, drawn from McCabe’s account of events plus the FBI agents’ writeup of the interview — the so-called 302 report — is contained in a sentencing memo filed Tuesday by Flynn’s defense team.

Citing McCabe’s account, the sentencing memo says that shortly after noon on Jan. 24 — the fourth day of the new Trump administration — McCabe called Flynn on a secure phone in Flynn’s West Wing office. The two men discussed business briefly and then McCabe said that he “felt that we needed to have two of our agents sit down” with Flynn to discuss Flynn’s talks with Russian officials during the presidential transition.

McCabe, by his own account, urged Flynn to talk to the agents alone, without a lawyer present. “I explained that I thought the quickest way to get this done was to have a conversation between [Flynn] and the agents only,” McCabe wrote. “I further stated that if LTG Flynn wished to include anyone else in the meeting, like the White House counsel for instance, that I would need to involve the Department of Justice. [Flynn] stated that this would not be necessary and agreed to meet with the agents without any additional participants.”

Within two hours, the agents were in Flynn’s office. According to the 302 report quoted in the Flynn sentencing document, the agents said Flynn was “relaxed and jocular” and offered the agents “a little tour” of his part of the White House.

“The agents did not provide Gen. Flynn with a warning of the penalties for making a false statement under 18 U.S.C. 1001 before, during, or after the interview,” the Flynn memo says. According to the 302, before the interview, McCabe and other FBI officials “decided the agents would not warn Flynn that it was a crime to lie during an FBI interview because they wanted Flynn to be relaxed, and they were concerned that giving the warnings might adversely affect the rapport.”

The agents had, of course, seen transcripts of Flynn’s wiretapped conversations with Russian then-ambassador Sergey Kislyak. “Before the interview, FBI officials had also decided that if ‘Flynn said he did not remember something they knew he said, they would use the exact words Flynn used … to try to refresh his recollection. If Flynn still would not confirm what he said … they would not confront him or talk him through it,'” the Flynn memo says, citing the FBI 302.

“One of the agents reported that Gen. Flynn was ‘unguarded’ during the interview and ‘clearly saw the FBI agents as allies,'” the Flynn memo says, again citing the 302.

Later in the memo, Flynn’s lawyers argue that the FBI treated Flynn differently from two other Trump-Russia figures who have pleaded guilty to and been sentenced for making false statements. One of them, Alexander Van der Zwaan, “was represented by counsel during the interview; he was interviewed at a time when there was a publicly disclosed, full-bore investigation regarding Russian interference in the 2016 election; and he was given a warning that it is a federal crime to lie during the interview,” according to the memo. The other, George Papadopoulos, “was specifically notified of the seriousness of the investigation…was warned that lying to investigators was a ‘federal offense’…had time to reflect on his answers…and met with the FBI the following month for a further set of interviews, accompanied by his counsel, and did not correct his false statements.”

The message of the sentencing memo is clear: Flynn, his lawyers suggest, was surprised, rushed, not warned of the context or seriousness of the questioning, and discouraged from having a lawyer present.

That is all the sentencing document contains about the interview itself. In a footnote, Flynn’s lawyers noted that the government did not object to the quotations from the FBI 302 report.

In one striking detail, footnotes in the Flynn memo say the 302 report cited was dated Aug. 22, 2017 — nearly seven months after the Flynn interview. It is not clear why the report would be written so long after the interview itself.

The brief excerpts from the 302 used in the Flynn defense memo will likely spur more requests from Congress to see the original FBI documents. Both House and Senate investigating committees have demanded that the Justice Department allow them to see the Flynn 302, but have so far been refused.

In the memo, Flynn’s lawyers say that he made a “serious error in judgment” in the interview. Citing Flynn’s distinguished 30-plus year record of service in the U.S. Army, they ask the judge to go along with special counsel Robert Mueller’s recommendation that Flynn be spared any time in prison.

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Macron offers crumbs to protestors in bid to save his globalist agenda (Video)

The Duran Quick Take: Episode 36.

Alex Christoforou

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The Duran’s Alex Christoforou and Editor-in-Chief Alexander Mercouris take a quick look at French President Macron’s pathetic display of leadership as he offers protestors little in the way of concessions while at the same time promising to crack down hard on any and all citizens who resort to violence.

Meanwhile France’s economy is set for a deep recession as French output and production grinds to a halt.

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Via Zerohedge


As if Brussels didn’t have its hands full already with Italy and the UK, the European Union will soon be forced to rationalize why one of its favorite core members is allowed to pursue populist measures to blow out its budget deficit to ease domestic unrest while another is threatened with fines potentially amounting to billions of euros.

When blaming Russia failed to quell the widespread anger elicited by his policies, French President Emmanuel Macron tried to appease the increasingly violent “yellow vests” protesters who have sacked his capital city by offering massive tax cuts that could blow the French budget out beyond the 3% budget threshold outlined in the bloc’s fiscal rules.

Given the concessions recently offered by Italy’s populists, Macron’s couldn’t have picked a worse time to challenge the bloc’s fiscal conventions. As Bloomberg pointed out, these rules will almost certainly set the Continent’s second largest economy on a collision course with Brussels. To be clear, Macron’s offered cuts come with a price tag of about €11 billion according to Les Echos, and will leave the country with a budget gap of 3.5% of GDP in 2019, with one government official said the deficit may be higher than 3.6%.

By comparison, Italy’s initial projections put its deficit target at 2.4%, a number which Europe has repeatedly refused to consider.

Macron’s promises of fiscal stimulus – which come on top of his government’s decision to delay the planned gas-tax hikes that helped inspire the protests – were part of a broader ‘mea culpa’ offered by Macron in a speech Monday night, where he also planned to hike France’s minimum wage.

Of course, when Brussels inevitably objects, perhaps Macron could just show them this video of French police tossing a wheelchair-bound protester to the ground.

Already, the Italians are complaining.  Speaking on Tuesday, Italian cabinet undersecretary Giancarlo Giorgetti said Italy hasn’t breached the EU deficit limit. “I repeat that from the Italian government there is a reasonable approach, if there is one also from the EU a solution will be found.”

“France has several times breached the 3% deficit. Italy hasn’t done it. They are different situations. There are many indicators to assess.”

Still, as one Guardian columnist pointed out in an op-ed published Tuesday morning, the fact that the gilets jaunes (yellow vest) organizers managed to pressure Macron to cave and grant concessions after just 4 weeks of protests will only embolden them to push for even more radical demands: The collapse of the government of the supremely unpopular Macron.

Then again, with Brussels now facing certain accusations of hypocrisy, the fact that Macron was pressured into the exact same populist measures for which Italy has been slammed, the French fiasco raises the odds that Rome can pass any deficit measure it wants with the EU now forced to quietly look away even as it jawbones all the way from the bank (i.e., the German taxpayers).

“Macron’s spending will encourage Salvini and Di Maio,” said Giovanni Orsina, head of the School of Government at Rome’s Luiss-Guido Carli University. “Macron was supposed to be the spearhead of pro-European forces, if he himself is forced to challenge EU rules, Salvini and Di Maio will jump on that to push their contention that those rules are wrong.”

While we look forward to how Brussels will square this circle, markets are less excited.

Exhausted from lurching from one extreme to another following conflicting headlines, traders are already asking if “France is the new Italy.” The reason: the French OAT curve has bear steepened this morning with 10Y yields rising as much as ~6bp, with the Bund/OAT spread reaching the widest since May 2017 and the French presidential election. Though well below the peaks of last year, further widening would push the gap into levels reserved for heightened political risk.

As Bloomberg macro analyst Michael Read notes this morning, it’s hard to see a specific near-term trigger blowing out the Bund/OAT spread but the trend looks likely to slowly drift higher.

While Macron has to fight on both domestic and European fronts, he’ll need to keep peace at home to stay on top. Remember that we saw the 10Y spread widen to ~80bps around the May ’17 elections as concerns of a move toward the political fringe played out in the markets, and the French President’s popularity ratings already look far from rosy.

And just like that France may have solved the Italian crisis.

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Watch: Democrat Chuck Schumer shows his East Coast elitism on live TV

Amazing moment in which the President exhibits “transparency in government” and shows the world who the Democrat leaders really are.

Seraphim Hanisch

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One of the reasons Donald Trump was elected to the Presidency was because of his pugnacious, “in your face” character he presented – and promised TO present – against Democrat policy decisions and “stupid government” in general.

One of the reasons President Donald Trump is reviled is because of his pugnacious, “in your face” character he presented – and promised TO present – in the American political scene.

In other words, there are two reactions to the same characteristic. On Tuesday, the President did something that probably cheered and delighted a great many Americans who witnessed this.

The Democrats have been unanimous in taking any chance to roast the President, or to call for his impeachment, or to incite violence against him. But Tuesday was President Trump’s turn. He invited the two Democrat leaders, presumptive incoming House Speaker Nancy Pelosi, and Senate Minority Leader Chuck Schumer, and then, he turned the cameras on:

As Tucker Carlson notes, the body language from Schumer was fury. The old (something)-eating grin covered up humiliation, embarrassment and probably no small amount of fear, as this whole incident was filmed and broadcast openly and transparently to the American public. Nancy Pelosi was similarly agitated, and she expressed it later after this humiliation on camera, saying, “It’s like a manhood thing for him… As if manhood could ever be associated with him.”

She didn’t stop there. According to a report from the New York Daily News, the Queen Bee took the rhetoric a step below even her sense of dignity:

Pelosi stressed she made clear to Trump there isn’t enough support in Congress for a wall and speculated the President is refusing to back down because he’s scared to run away with his tail between his legs.

“I was trying to be the mom. I can’t explain it to you. It was so wild,” Pelosi said of the Oval Office meet, which was also attended by Vice President Pence and Senate Minority Leader Chuck Schumer (D-N.Y.). “It goes to show you: you get into a tinkle contest with a skunk, you get tinkle all over you.”

This represented the first salvo in a major spin-job for the ultra-liberal San Francisco Democrat. The rhetoric spun by Mrs. Pelosi and Chuck Schumer was desperate as they tried to deflect their humiliation and place it back on the President:

With reporters still present, Trump boasted during the Oval meeting he would be “proud” to shutdown the government if Congress doesn’t earmark cash for his wall before a Dec. 21 spending deadline.

Pelosi told Democrats that Trump’s boisterousness will be beneficial for them.

“The fact is we did get him to say, to fully own that the shutdown was his,” Pelosi said. “That was an accomplishment.”

The press tried to characterize this as a “Trump Tantrum”, saying things like this lede:

While “discussing” a budgetary agreement for the government, President Donald Trump crossed his arms and declared: “we will shut down the government if there is no wall.”

While the Democrats and the mainstream media in the US are sure to largely buy these interpretations of the event, the fact that this matter was televised live shows that the matter was entirely different, and this will be discomfiting to all but those Democrats and Trump-dislikers that will not look at reality.

There appears to be a twofold accomplishment for the President in this confrontation:

  1. The President revealed to his support base the real nature of the conversation with the Democrat leadership, because anyone watching this broadcast (and later, video clip) saw it unedited with their own eyes. They witnessed the pettiness of both Democrats and they witnessed a President completely comfortable and confident about the situation.
  2. President Trump probably made many of his supporters cheer with the commitment to shut down the government if he doesn’t get his border wall funding. This cheering is for both the strength shown about getting the wall finished and the promise to shut the government down, and further, Mr. Trump’s assertion that he would be “proud” to shut the government down, taking complete ownership willingly, reflects a sentiment that many of his supporters share.

The usual pattern is for the media, Democrats and even some Republicans to create a “scare” narrative about government shutdowns, about how doing this is a sure-fire path to chaos and suffering for the United States.

But the educated understanding of how shutdowns work reveals something completely different. Vital services never close. However, National Parks can close partly or completely, and some non-essential government agencies are shuttered. While this is an inconvenience for the employees furloughed during the shutdown, they eventually are re-compensated for the time lost, and are likely to receive help during the shutdown period if they need it. The impact on the nation is minimal, aside from the fact that the government stops spending money at the same frenetic pace as usual.

President Trump’s expression of willingness to do this action and his singling out of the Dem leadership gives the Democrats a real problem. Now the entire country sees their nature. As President Trump is a populist, this visceral display of Democrat opposition and pettiness will make at least some impact on the population, even that group of people who are not Trump fans.

The media reaction and that of the Democrats here show, amazingly, that after three years-plus of Donald Trump being a thorn in their side, they still do not understand how he works, and they also cannot match it against their expected “norms” of establishment behavior.

This may be a brilliant masterstroke, and it also may be followed up by more. The President relishes head-to-head conflict. The reactions of these congress members showed who they really are.

Let the games begin.

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